Accountants Say Katrina Is ‘Ordinary’

Hurricane Katrina, though catastrophic and unforgettable, was not an “extraordinary” event for financial reporting purposes, according to the accounting industry’s standards board and the nation’s largest accountants group.

The American Institute of Certified Public Accountants advised its members this week that because a hurricane is a natural disaster “that is reasonably expected to reoccur,” the losses it causes shouldn’t be considered extraordinary in bookkeeping. The costs of an extraordinary event are segregated in a financial report, so many analysts and investors exclude them in assessing a company.

Daniel Noll, the institute’s director of accounting standards, said the industry’s guiding literature was clear on the issue. He also acknowledged there was bound to be some disagreement.

“There are people who say it’s the magnitude of what Hurricane Katrina did that was extraordinary,” he said. “You can find accountants on the same block who will disagree on this guidance.”

Katrina, which may become the costliest disaster ever, lashed the Gulf Coast last month, dislodging oil rigs and breaking levees to flood 80% of New Orleans. The latest estimates from storm modeler Risk Management Solutions Inc. put insurance losses at $40 billion to $60 billion from the hurricane.

An example of a natural disaster that might be considered extraordinary, Noll said, would be an earthquake that strikes where there is no known fault line or documented history of quake activity.

The Financial Accounting Standards Board also considers Katrina “ordinary” for accounting purposes.

The chairman of the board’s Emerging Issues Task Force, Larry Smith, said Wednesday that there were no plans to have the task force consider whether to label Katrina an extraordinary event, board spokesman Gerard Carney said.

Smith made his comment at a meeting of the task force at the accounting standards board’s offices in Norwalk, Conn., Carney said.