We explore reporting nonrecurring gains and losses (extraordinary and special items) among municipalities. We begin by documenting the nature, type, and frequency of reporting, finding that surprisingly few municipalities report items, including those with FEMA disasters and despite GASB standards. Results suggest municipalities with CPA-finance directors are significantly more likely to report items, while less likely reported among those led by unelected bureaucrats (council-manager political governance). Moreover, nonrecurring items are systematically associated with surpluses and deficits in a manner suggesting strategic reporting. Specifically, our evidence suggests officials report income-increasing nonrecurring items to reduce or avoid reporting deficits, and income-decreasing items to reduce surpluses. Strategic reporting is generally magnified when state laws allow direct voter initiatives and reduced when state laws mandate GAAP accounting or external audits. Overall, we conclude that accounting expertise and political governance structures are significant determinants of reporting nonrecurring items, and that some officials strategically report them.

ABSTRACT Accounting standards require firms to distinguish recurring revenues and expenses from nonrecurring gains and losses, which are often referred to as special items. However, not all special items are genuinely nonrecurring. Exploiting the setting of earnings conference calls, we explore whether analysts can identify opportunistic special items, as evidenced by asking for more information about them. We find evidence that managers' discussions of special items more often relate to predicted special items, whereas analysts have more questions about potentially opportunistic special items. Managers adopt a relatively more negative tone and use more words when answering questions about potentially opportunistic special items. Finally, we find that analysts who question potentially opportunistic special items have fewer opportunities to speak in the subsequent call, consistent with managerial retaliation.