ACCOUNTING DEFINITIONS PART 5

IMPORTANT AND USEFUL MATERIAL AVAILABLE AT COST-ACCOUNTANTS
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EA is Enrolled Agent (IRS designation).

E&O INSURANCE is an errors and omissions, or E&O, liability policy (often called malpractice insurance) covers liability for negligent acts, errors and omissions committed by professionals, including physicians, accountants, lawyers, etc.

E&OE is a British acronym that stands for "Errors and Omissions Excepted". E&OE is a legal disclaimer that notifies the reader that, without prejudice, that the content and/or validity of the subject data may change without notice.

E&P is Earnings and Profits.

EARNED INCOME is that income realized by the provisioning of goods and services.

EARNED SURPLUS see RETAINED EARNINGS.

EARNING ASSET is an asset which provides income (e,g, rental property).

EARNING CAPACITY is the net average earnings at a given moment in time: past, current or future.

EARNING CAPACITY, LOSS OF “Loss of earning capacity” means the difference between the worker’s net average earnings before the incident, and the net average amount of wages the deciding body determines the worker is capable of earning after the incident.

EARNING POWER is earnings before interest and taxes (EBIT) divided by total assets.

EARNING QUALITY is best determined through the inverse relationship between the amount of time elapsed between revenue recognition and cash collection.

EARNINGS is a term that refers to the financial capacity of a corporation to make distributions to shareholders other than return of capital, e.g., dividends. See also RETAINED EARNINGS.

EARNINGS BEFORE TAXES see PROFIT BEFORE TAXES.

EARNINGS FROM OPERATIONS (EFO) represent earnings before other operating items less (i) depreciation and amortization plus (ii) other income less (iii) other expense.

EARNINGS MANAGEMENT occurs when managers use judgment in financial reporting and in structuring transactions to alter financial reports to either mislead some stakeholders about the underlying economic performance of the company, or to influence contractual outcomes that depend on reported accounting numbers.

EARNINGS PER SHARE (EPS) is either: a. Basic EPS is earnings before extraordinary gains and losses, less preferred-share dividends, divided by all common shares outstanding at the most recent fiscal year end. Net income, or earnings, refers to the company's after-tax profits before extraordinary gains or extraordinary losses for the most recent annual period; or, b. Diluted EPS is where the number of shares used in the calculation is increased to account for outstanding dilution such as options, warrants, in-the-money convertibles, etc.

EARNINGS RETENTION is the proportion of net income that is not paid in dividends. A firm earning $80 million after taxes and paying dividends of $20 million has a retention rate of $60 million/$80 million, or 75%. A high retention rate makes it more likely a firm's income and dividends will grow in future years.

EBIT is Earnings Before Interest and Tax. EBIT is an indicator of a company's financial performance calculated as revenue less expenses excluding tax and interest. It is sometimes referred to as operating earnings.

EBITDA means Earnings Before Interest, Taxes, Depreciation and Amortization, but after all product / service, sales and overhead (SG&A) costs are accounted for. Sometimes referred to as Operational Cash Flow.

EBITDARM is an acronym for Earnings Before Interest, Taxes, Depreciation, Amortization, Rent and Management fees.

E.C. (EUROPEAN COMMUNITY or EUROPEAN COMMON MARKET) is a trading block of countries in Europe that have agreed on common regulations on cross-border trade.

ECONOMETRICS literally means 'economic measurement'. It is the branch of economics that applies statistical methods to the empirical study of economic theories and relationships. It is a combination of mathematical economics, statistics, economic statistics and economic theory.

ECONOMICALLY FEASIBLE means that the benefit of tracing the cost (greater accuracy) outweighs the cost of doing so.

ECONOMIC BOOK VALUE allows for a book value analysis that adjusts the assets to their market value. This valuation allows valuation of goodwill, real estate, inventories and other assets at their market value.

ECONOMIC COST is a synonym for opportunity cost, i.e. the highest valued alternative given up in the pursuit of an activity. See ACCOUNTING COST and OPPORTUNITY COST.

ECONOMIC DEPRECIATION is the decline in real estate property value caused by external forces, such as neighborhood blight or adverse development.

ECONOMIC ENTITY accounting concept that provides context or “point of view” for the economic events (i.e., transactions) captured by the financial statements. In short, it answers the questions, “Whose asset is it?”; “Whose liability is it?”

ECONOMIC EVENT is the transfer of control of an economic resource from one party to another party.

ECONOMIC EXPOSURE, in foreign exchange, is the extent to which the value of the firm, as measured by the present value of all expected future cash flows, will change when exchange rates change.

ECONOMIC INCOME is the maximum amount that can be distributed to owners during the accounting period and leave the business as well off at the end of the accounting period as it was at the beginning of the period; i.e. cash flow based.

ECONOMIC ORDER QUANTITY is the order quantity that minimizes total inventory costs. A total inventory cost is the sum of ordering, carrying and stock-out costs.

ECONOMIC PROFITS is the difference between the total revenue and the total opportunity costs.

ECONOMIC RESOURCES is the profitable extraction or production, under defined investment assumptions, of returns that are analytically demonstrable or can be assumed with reasonable certainty.

ECONOMIC SUBSTANCE refers to the application of income tax laws, i.e., the substance of the transaction, rather than its form, determines the tax consequences, with few exceptions. The "form" of a transaction is only the label the interested parties attach to their arrangement. For instance, an arrangement might be called a compensation agreement, loan, lease or sale. Documents may support the form, but the courts are not concerned with these labels or papers that purport to govern the transaction -- they focus on its substance. The "substance over form" analysis is used to dissect self-serving transactions between parties, including loans and payments to family members; transactions between related corporations and their shareholders, partnerships and their partners; and between trusts and their beneficiaries. For instance, sale of a home by a parent to a child may be recharacterized by the court as a gift, if the child never pays for it. Related-party transactions provide fertile territory for self-dealing, with the tax benefit as the real motivating purpose, disguised by the form of the transaction. In contrast, arm's-length transactions with independent third parties are far less vulnerable.

ECONOMIC VALUE (EV) is the value of an asset deriving from its ability to generate income.

ECONOMIC VALUE ADDED (EVA) measures the difference between the return on a companies capital and the cost of that capital. A positive EVA indicates that value has been created for shareholders; a negative EVA signifies value destruction.

ECONOMIES OF SCALE is based upon the theory that the more you produce of a good, the less that it costs for each additional unit, i.e., efficiency. Specifically, it is the reduction of the costs of production of goods due to increasing the size of the producing entity and the share of the total market for the good/product.

EDP is Electronic Data Processing.

EEO is Equal Employment Opportunity or Equal Employment Office.

EF&L is Errors, Fines and Losses.

EFFECTIVE DATE OF INTEREST is the market rate at time of a debt issue.

EFFECTIVE INTEREST RATE is the cost of credit on a yearly basis expressed as a percentage. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the note.

EFFECTIVE TAX RATE is the net rate a taxpayer pays on income that includes all forms of taxes. It is calculated by dividing the total tax paid by taxable income.

EFFICIENCY is the ratio of the output to the input of any system.

EFFICIENT MARKET THEORY is the hypothesis that market prices reflect the knowledge and expectations of all investors. Within this theory, investors who adhere to it believe it to be highly improbable that market movement can be predicted, i.e., using darts to chose stocks are just as effective as stock or market analysis.

EFFORT-EXPENDED METHOD measures the percentage of labor hours incurred to date as compared to estimated total labor hours for each contract.

EFO see EARNINGS FROM OPERATIONS.

EFT see Electronic Funds Transfer.

EI&DO is Extraordinary Items and Discontinued Operations.

EITF see Emerging Issues Task Force.

ELECTRONIC FUNDS TRANSFER is a payment executed through computers.

ELEMENTARY ACCOUNTING is the basics in financial accounting theory and practice.

ELIMINATION is the the act of removing a mathematical quantity by combining equations. This is common practice in accounting when consolidating financial reports; one example would be inter-company transactions, currency translations, and account balances.

EMBEZZLEMENT is the fraudulent appropriation and personal use of funds or property entrusted to that persons care but actually owned by someone else, e.g. an employee can embezzle money from his or her employer, a civil servant can embezzle funds from the treasury, or a pastor can embezzle funds from a church. See also THEFT and WHITE COLLAR CRIME.

EMC (EXPORT MANAGEMENT COMPANY) is a private company that serves as the export agent for manufacturers, being paid by commission or retainer. Merchandise is not normally purchased by the EMC.

EMERGING ISSUES TASK FORCE (EITF) was formed in 1984 in response to the recommendations of the FASB's task force on timely financial reporting guidance and an FASB Invitation to Comment on those recommendations. The mission of the EITF is to assist the FASB in improving financial reporting through the timely identification, discussion, and resolution of financial accounting issues within the framework of existing authoritative literature.

EMI is Equal Monthly Installments (finance/business).

EMPLOYED, generally, is having your services engaged for; or having a job especially one that pays wages or a salary. In a more specific sense employed means: to put to use, e.g. funds employed or ideas employed.

EMPLOYEE BENEFITS is non-wage compensation provided to employees, such as group insurance, retirement benefits, day care, tuition reimbursement, and specialized benefits.

EMPLOYEE COMPENSATION is wage and salary payments as well as benefits including health and life insurance, retirement payments, and any other non-cash compensation.

ENCUMBERED is when an asset is owned by one party subject to the legal claims of another party. One example is a homeowner that owns a home that is subject to (encumbered by) the claims of the mortgage holder.

ENCUMBRANCE is a) a right or interest in land owned by someone other than the owner of the land itself; examples include easements, leases, mortgages, and restrictive covenants; or, b) in accounting, an encumbrance is an anticipated expenditure, or funds restricted for anticipated expenditures, such as for outstanding purchase orders.

ENDING INVENTORY is inventory at the end of the accounting period.

ENDORSE, depending upon usage, can be: a. application of legal signature to documents or checks; b. a guarantee as meeting a certain standard; c. to be behind or approve of; or, d. to give active support or one's approval to.

ENDORSEMENT, dependent upon usage, can be: a. a signature that validates something, e.g. a bank cashier will not cash a check without an endorsement; b. a promotional statement, e.g. as found on the dust jackets of books; or, c. formal and explicit approval.

ENDOWMENT is a permanent fund where gifts to the fund are held in perpetuity and where earnings are used in accordance with the donor’s specified wishes.

ENGAGEMENT is a binding, pledging, or coming together, e.g. a mutual pact, contract, or agreement.

ENGAGEMENT LETTER is a document that defines the legal relationship (or engagement) between a professional firm e.g., law, investment banking, consulting, advisory or accountancy firm and its client(s).

ENGINEERED COSTS are those costs having a clear linkage to output, e.g., direct materials costs.

ENHANCED DISCLOSURE, in securities, is an in-depth open disclosure of any activity taken or proposed by the securities issuer that may have any relevance, positive or negative, to the securities in question.

ENROLLED AGENT is any individual who is enrolled under the provisions of Treasury Department Circular No. 230 to practice before the IRS.

ENTERPRISE is an organization created for business ventures.

ENTERPRISE RESOURCE PLANNING (ERP) is an information system or process that integrates all operational data and related applications for an entire enterprise. ERP systems permit organizations to manage resources across the enterprise.

ENTERPRISE VALUE (EV) is a measure of a company's value. Enterprise value is calculated by: market capitalization plus debt and preferred shares minus cash and cash equivalents. In effect, enterprise value is the theoretical takeover price, i.e., in the event of a buyout an acquirer would have to take on the company's debt but would pocket its cash.

ENTERPRISE ZONE is a depressed neighborhood, usually in an urban area, where businesses are given tax incentives and are not subject to some government regulations. These advantages are designed to attract new business in the zone.

ENTITY, in business, is a separate or self-contained existence that provides goods or services.

ENTITY BOUNDARY is that which is legally included within or excluded from a defined entity.

ENTITY ASSUMPTION is the assumption that financial statements are prepared for an entity that is separate and distinct from its owners.

ENTITY CONCEPT is the concept that financial accounting and reporting relates only to the activities of a specific business entity and not to the activities of the owners of that entity.

ENTITY THEORY is where a legal entity is regarded as having a separate existence from the owners. The financial statements are prepared from the perspective of the entity, not its owners. See PROPRIETARY THEORY.

ENTREPRENEUR is the person who assumes the financial risk of the initiation, operation and management of a given business or undertaking. He/She is primarily a financial and/or professional risk taker almost to the extreme.

EOM is End of Month.

EOY is End Of Year.

EOZ is Environmental Opportunity Zones.

EPS see EARNINGS PER SHARE.

EPU see EQUIVALENT UNIT OF PRODUCTION.

EQUILIBRIUM POINT is one of the fundamental concepts in economics describing the market price of a good or service as being determined by the quantity of both supply and demand for it. In 1890, the English economist Alfred Marshall published his famous work, Principles of Economics. Marshall's graph displays two lines that cross as an "X" with the declining line representing customer demand and the ascending line supply. The intersection of the two lines denotes an EQUILIBRIUM POINT toward which the market price will move to equalize the supply quantity to exactly match the demand quantity. Any higher price above this equilibrium creates a surplus where sellers would inevitably lower their price to sell more of the product. A lower price creates a shortage where sellers would increase price to earn more profit.

EQUIPMENT is generally determined by the meeting of three tests: a. Has an acquisition cost that is equal to or more than the cost hurdle for classifying capitalized assets. Includes: Invoice amount, sales tax, freight costs, installation costs, costs for the initial complement of supplies needed to place the asset into service, accessory and auxiliary apparatus necessary to make it usable for the purpose for which it was acquired; less trade or trade in discounts and/or educational allowances Excludes: Federal Excise tax, duty, insurance, maintenance and warranty costs; and, b. Has a useful life of two or more years If the item will not have a useful life of more than two years it is considered expendable material, even if it costs more than the level for determining a capital asset; and, c. Is a stand alone item. The item is not permanently attached to or integrated into a building or structure.

EQUIPMENT LOAN is a loan used for the purchase of capital equipment.

EQUITY is, normally, ownership or percentage of ownership in a company or items of value.

EQUITY ACCOUNTING is the practice of showing in a company's accounts the share of undistributed profits of another company in which it holds equity ownership (usually below 50%). The share of profit shown is usually equal to its share of the equity in the other company. The profit may not actually be paid over, but the equity holding company has a right to this share of the undistributed profit.

EQUITY CAPITAL is a form of financing where equity in a business is sold to private investors.

EQUITY FINANCING is a method of an entity obtaining funds by issuing either common or preferred stock, or both. Receipts can be through cash, services, or property. It is in the entities best interest to issue shares when the market price for the stock is at its highest.

EQUITY FUND is a mutual fund whose portfolio consists primarily of common stocks.

EQUITY FUNDING see EQUITY CAPITAL.

EQUITY HOLDING is a holding of the nominal share capital in a company where the shareholding entitles the shareholder to a right to votes, to profits available for distribution to shareholders and to assets available for distribution on a winding up of that company. A holding of shares held as trading stock for the purpose of a trade does not constitute a participating holding.

EQUITY INSTRUMENT covers any share (or part thereof) in the equity share capital of a company (or a comparable member’s interest in a close corporation). The term also includes share options and any other financial instrument convertible into a share (such as a convertible debenture).

EQUITY METHOD is a method of accounting for investments in associated companies.

EQUITY MULTIPLIER (EM) shows the amount of assets owned by the firm for each equivalent monetary unit owner claims held by stockholders, i.e., the equity multiplier measures how many dollars of assets an institution supports with each dollar of capital. If a firm is totally financed by equity, the equity multiplier will equal 1.00, while the larger the number the more highly leveraged is the firm. EM compares assets with equity: large values indicate a large amount of debt financing relative to equity. EM, thus, measures financial leverage and represents both profit and risk measurement. EM affects a firm’s profit because it has a multiplier impact on Return on Assets (ROA) to determine the firm’s Return on Equity (ROE). EM is also a risk measure because it reflects how many assets can go into default before a company becomes insolvent. The EM ratio is best compared to industry averages. Formula: Total Assets / Net Worth

EQUITY SHARE is a. a share or class of shares whether or not the share carries voting rights, b. any warrants, options or rights entitling their holders to purchase or acquire the shares referred to under (a), or c. other prescribed securities. An equity share is a perpetual liability because it signifies an owner's legal demand upon the assets of the entity in which the equity share if held. See also COMMON STOCK.

EQUITY SHARE CAPITAL is capital raised by an entity through the sale of common shares.

EQUITY OFFERING see EQUITY CAPITAL.

EQUITY-TO-ASSET RATIO expresses the proportion of total assets financed by the owner’s equity capital. It is the reciprocal of the debt-to-asset ratio.

EQUIVALENT UNIT OF PRODUCTION (EPU) is based on the idea that if 100 units are all 40% complete, then 40 whole units could have been completed.

ERISA, in the U.S., refers to the Employee Retirement Income Security Act of 1974. ERISA is a major U.S. law which guarantees certain categories of employees a pension after some period at their employer; there had been more ambiguity before about what rules an employer could put on which employees could get a pension.

ERP can mean either Enterprise Resource Planning or Early Retirement Program. See ENTERPRISE RESOURCE PLANNING.

ERROR OF COMISSION is an error that occurs as a result of an action taken. In accounting, the error occurs when one or both of the double entries are made in the correct class of account but the wrong account within that class.

ERROR OF OMISSION is an error which occurs as a result of an action not taken. In accounting, the error occurs when both the entries required for a transaction are completely omitted from the books.

ERROR OF ORIGINAL ENTRY, in accounting, occurs when the double entry is made but using an incorrect figure.

ERROR OF PRINCIPLE, in accounting, occurs when one or both of the entries are made in the wrong class or category of account.

ESCHEAT is the reversion of property to the state (government) in the absence of legal heirs or claimants.

ESCROW ACCOUNT see TRUST ACCOUNT.

ESTATE is the entire group of assets owned by an individual at the time of his or her death. The estate includes all funds, personal effects, interests in business enterprises, titles to property-real estate and chattels, and evidences of ownership such as stocks, bonds and mortgages owned, notes receivable, etc. All claims against an estate must be duly filed with the Executor or Administrator of the estate, and approved by the court of law under which the will is being probated or the line of heritage is being determined before the indebtedness may be satisfied.

ESTATE TAXES are the Federal taxes levied on the transfer of property from the deceased to his or her heirs, legatees or devisees.

ETC (EXPORT TRADING COMPANY) is a private company that usually purchases items from domestic manufacturers, then sells them to foreign markets. The difference between an EMC and an ETC is sometimes insignificant, i.e., an EMC may occasionally take title of goods, while an ETC may sometimes work strictly on commission without purchasing the goods. The difference is what the company normally does.

ETHICAL STANDARDS, in accounting, is a written document containing basic principles and essential procedures together with related guidance in the form of explanatory and other material.

ETHICS, in business, are moral and professional principles.

EUROBOND see GLOBAL BOND.

EUROIZATION is the use of the euro by a country as its own currency; the linking of a currency’s value to that of the euro; or, the use of the euro for accounting purposes.

EV (economic value) is the value of an asset deriving from its ability to generate income.

EVA see ECONOMIC VALUE ADDED.

EVENT RISK is the risk that the ability of an issuer to make interest and principal payments will change because of rare, discontinuous, and very large, unanticipated changes in the market environment such as (1) a natural or industrial accident or some regulatory change or (2) a takeover or corporate restructuring.

EX is not including or without, e.g. a stock price ex dividend. In business: free of any transport or handling charges incurred before removal from a given location, e.g., bought the goods ex warehouse.

EXCEPTIONAL COST see EXCEPTIONAL ITEMS.

EXCEPTIONAL ITEMS are material items which derive from events or transactions that fall within the ordinary activities of the reporting entity and which individually or, if of a similar type, in aggregate, need to be disclosed by virtue of their size or incidence if the financial statements are to give a true and fair view.

EXCESS OF REVENUE OVER EXPENSES in the not-for-profit sector. There is a common misconception that not-for-profit organizations are not allowed to have a financial cushion as they are “not-for-profit”. In this context it is useful to remember that not-for-profit organizations are also “not-for-loss” organizations. An organization cannot sustain losses over the long term without ceasing to operate or going bankrupt. Excess of revenue over expenses is the planned financial position that there will always be a sufficient amount of funds on hand to continue to run the not-for-profit entity for some period without additional funding; usually 3-4 months.

EXCHANGE is a. a workplace for buying and selling; open only to members, e.g. New York Stock Exchange; or, b. reciprocal transfer of equivalent sums of money especially the currencies of different countries, e.g. foreign exchange markets.

EXCHANGE GAIN (LOSS) is a gain (loss) on the exchange of one currency for another due to appreciation (depreciation) in the home currency (for receivables).

EXCHANGE LOSS (GAIN) see EXCHANGE GAIN (LOSS).

EXCHANGE RATE is the rate at which one currency can be traded for another.

EXCHANGE RATE RISK, in foreign exchange, is the variability of a firm’s value due to uncertain changes in the rate of exchange.

EXCISE TAX is a tax imposed by federal, state, and local governments on an act, occupation, privilege, manufacture, sale, or consumption that is not deductible (e.g., tobacco, gasoline and spirits). This term is in increasing usage to describe almost every tax other than income tax and property tax.

EXECUTOR is a legal entity, frequently an individual, known before death to a testator, who is named in the testator's will to carry out the desires of the deceased after his death as designated in the will. Executors must be approved by the court of law probating the will. An executor pays all indebtedness as claimed by creditors of the estate, with the approval of the court of law, and then carries out or executes the will according to the terms set forth by the testator.

EXEMPT is being freed from or not subject to an obligation, liability, tax, etc.; excused. Examples: exempt gifts or tax-exempt bonus.

EXERCISE, in business or law, to make use of a right available in a legally binding agreement, e.g. to implement the right of the holder of an option to buy (in the case of a call) or sell (in the case of a put) the underlying security.

EX-FACTORY is where a seller's responsibility ends when the buyer at point of origin, i.e., factory, accepts merchandise. This can also be written as Ex-Warehouse, Ex-works, etc.

EXISTING USE VALUE (EUV) is the price at which a property can be sold on the open market assuming that it can only be used for the existing use for the foreseeable future.

EXPECTATION GAP, in accounting, is the gap between an auditors' actual standard of performance and the more rigorous public expectation of what an auditors' performance should be. The users of financial statements should be allowed to expect that the auditors' materiality levels correspond with their own. If this is not the case an expectation gap will arise. Especially if the financial statements contain non-corrected known errors or omissions classified as immaterial by the auditor, but classified as material by the users. The unknown material errors and omissions are still a part of the audit risk.

EXPECTED ANNUAL CAPACITY is the planned activity levels or output for a given year taking into account efficiency and idle capacity.

EXPECTED VALUE OF PERFECT INFORMATION (EVPI) is the difference between the expected value with (additional) perfect information and the expected value with current information. The expected value of perfect information is the maximum amount a decision maker should pay for additional information that gives a perfect signal as to the state of nature.

EXPENDABLE is something that can be used and discarded without hurting the end product or the company's viability.

EXPENDABLE NET ASSETS are those assets not required to be retained in perpetuity, i.e. those assets available for use for operations.

EXPENDABLE TRUST FUND is a governmental fiduciary fund held in a trustee capacity by a governmental agency that accounts for assets and activities restricted to a specific purpose in accordance to formal intent. The principal of the fund can be expended towards only the activity specified, e.g., Unemployment Compensation Fund, Employee Benefits Fund, etc.

EXPENDITURE is a cost incurred in the normal course of business to generate revenues. See expenses.

EXPENSE is the amount of assets or services used during a period.

EXPENSES are the daily costs incurred in running and maintaining a business. See expenditure.

EXPIRATION DATE is the date on which something; e.g. a security or bond offering, warranty or license; is no longer valid or in effect.

EXPIRED EXPENSE is an expense having come to an end or become void after passage of a period of time.

EXPLORATORY RESEARCH is a method used when gathering primary information for a market survey where targeted consumers / customers are asked very general questions geared toward eliciting a lengthy answer.

EXPORT BROKER is an entity that brings together foreign buyers with domestic manufacturers for a fee, generally providing little other services. An EMC, who is also a middleman, often provides extensive services to complete the transaction as well.

EXPORT DECLARATION is the official paperwork required of exporters so trade transactions and goods can be tracked.

EXPORT LICENSE is the governmentally issued legal permit to export merchandise. In the U.S., it is either a general license requiring no additional paperwork or a validated license for certain federally controlled items.

EXPOSURE, generally, is the extent to which a product is kept in the public eye through the press, radio, television, and public appearances. In finance, exposure refers to the amount that a business or person can lose. For example: in foreign exchange, it refers to the degree to which a company is affected by exchange rate changes.

EXPOSURE DRAFT is a proposed statement of financial accounting standards issued by the FASB for public comment. The exposure draft represents the FASB's considered judgment on a specific accounting issue. Subject to comments received and possible additional deliberation, an exposure draft may become a Statement of Position (SOP), mandating a Financial Accounting Standard (FAS).

EXPROPRIATION is the taking of property or rights by governmental authority such as eminent domain, possibly including an emergency situation, such as taking a person's truck or bulldozer to build a levee during a flood. In such a case just compensation eventually must be paid to the owner, who can make a claim against the taker.

EXTERNAL is from or between other countries, e.g. external commerce; or, happening, arising or located outside or beyond a company, e.g. external influences.

EXTERNAL AUDIT is an audit conducted by an individual or firm that is independent of the company being audited. These independent auditors audit the books of a company generally once per year (see INTERIM AUDIT) after the completion of the company's fiscal year. Their role is to give an opinion of the financials statement's reflection of the status and operations of the company being audited. Based on what they witness during the audit they will also produce, for management and board utilization, a management letter. Although a financial statement audit is the most common type of external audit, external auditors may also conduct special purpose audits which might include; performing specific tests and procedures and reporting on the results, a less intensive review, and compilations.

EXTERNAL AUDITOR is an auditor, usually working for an audit firm, that is completely independent of the company it is auditing. External auditors should always be certified by a professional association of accountants, and should be selected by, and report to, the corporation’s board of directors.

EXTERNAL DEBT is the total private and public debt owed by a country to individuals, households, firms, and governments in other countries.

EXTERNAL ENVIRONMENT is factors (conditions, trends, and forces) essentially outside the control of organizational members. External environmental scans are conducted to identify important factors in the external environment. This analysis is often a critical aspect in all business or strategic plans.

EXTINGUISHMENT OF DEBT is the debtor's satisfaction of the obligation to a creditor, either legally or in-substance. A debt shall be accounted for as having been extinguished in a number of circumstances, including when it has been settled through repayment or replacement by another liability.

EXTRAORDINARY EXPENSE see EXTRAORDINARY ITEMS.

EXTRAORDINARY ITEMS are material items that are unusual in nature and occur infrequently. Both characteristics must exist for an item to be classified as an extraordinary item on the income statement.

EXTRATERRITORIAL INCOME EXCLUSION is the amount excluded from a taxpayer's gross income for certain transactions that generate foreign trading gross receipts. In general, foreign trading gross receipts include gross receipts from the sale, exchange, lease, rental, or other disposition of qualifying foreign trade property. Foreign trading gross receipts also include receipts from certain services provided in connection with such property, as well as engineering and architectural services for construction projects outside the United States. Qualifying foreign trade property generally includes property that is held primarily for sale or lease for direct use or consumption outside the United States. Form 8873 is attached to the taxpayer's income tax return. Both corporate and non-corporate taxpayers who have qualifying transactions may now be required to file Form 8873. The exclusion reported on Form 8873 was created by the Foreign Sales Corporation (FSC) Repeal and Extraterritorial Income Exclusion Act of 2000. The new exclusion applies to certain transactions entered into after September 30, 2000, but is subject to transition rules for foreign corporations with a valid FSC election in effect on September 30, 2000.