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Earnings Per Share: Short-term Convergence

Date recorded:

The Financial Accounting Standards Board (FASB) plans to publish a revised exposure draft in September 2005 that would amend FASB Statement No. 128 Earnings per Share. The exposure draft is a revision of FASB's December 2003 exposure draft, which was published as part of its short-term convergence project. The revised exposure draft clarifies the guidance on mandatorily convertible instruments, the treasury stock method, contracts that can be settled in cash or shares, and contingently issuable shares.

The FASB's proposals would create requirements that diverge from those in IAS 33 Earnings per Share. The Board was asked to consider the proposals and establish whether a similar project should be undertaken. The IASB discussed two alternatives:

  • 1. Proceed with the FASB to address these issues. However, divergence would persist principally due to the different accounting for convertible debt, something that could only be resolved through the 'debt/equity' project.
  • 2. Do nothing at this time. The IASB reasoned that the SEC was unlikely to be concerned by the difference that would arise in this area as it is not a significant issue.

FASB staff (via video link) indicated that it was the FASB's intention to address earnings per share more comprehensively as part of the 'debt/equity' project.

The IASB decided not to do anything at this time but monitor the FASB project through to its conclusion.

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