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Earnings per Share

Date recorded:

The FASB staff joined the meeting by video link for this session.

The purpose of this session was to discuss various amendments to IAS 33 Earnings per Share in order to finalise the short-term convergence project. The Board unanimously agreed to all proposed amendments without detailed discussion. The main decisions are summarised in the paragraphs below. Further details are outlined in Agenda Paper 11 and 11A available in the Observer Notes section of the IASB's website.

Fair value method

The Board decided to apply the fair value method to the following instruments and therefore to scope-out these instruments from the computation of diluted earnings per share (EPS):

  • all instruments subject to the treasury stock method that can be settled in cash or shares, are classified as a liability on an entity's balance sheet, and are marked-to-market each reporting period through profit or loss
  • all instruments subject to the if-converted method that can be settled in cash or shares, are classified as a liability on an entity's balance sheet, and are marked-to-market each reporting period through profit or loss

In addition, the modified treasury stock method would be applied to instruments that are subject to the treasury stock method, can be settled in cash or shares and are not marked to fair value in each reporting period. The modification is to include the end-of-period carrying value of the liability as an assumed proceed and to use the end-of-period market price in the computation of the treasury stock method.

Scoping issues

Among others the following decisions were made:

  • To amend paragraph A14 of IAS 33 to clarify that the two-class method is the only acceptable method for computing basic EPS for instruments that participate in earnings with the common shareholders irrespective of whether these instruments are convertible into common shares or not.
  • To incorporate into IAS 33 the guidance included in the proposed FSP FAS 128-a regarding the computation of diluted EPS using the two-class method.
  • Explicitly to require the use of the two-class method in computing basic EPS for mandatorily convertible instruments that have a stated participation right and to exclude those instruments from the computation of basic EPS that do not have a stated participation right.
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