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Short-term Convergence: Earnings per Share

Date recorded:

Treasury stock method

The Board agreed a staff recommendation that, assuming that the change to the treasury stock method is finalised in a FASB Statement:

  • A similar proposed amendment is made in IAS 33 to the treasury stock method that is applied to the inclusion of options, warrants and their equivalents in the calculation of diluted EPS.
  • The if converted method is eliminated and that the amended treasury stock method is applied to the inclusion of convertible instruments in the calculation of diluted EPS, that is, the amended treasury stock method is also applied to the inclusion of convertible instrument in the calculation of EPS.

A Board member raised a concern that the treasury stock method does not work if the affected shares are held in a partly-owned subsidiary and suggested that a modest change to IAS 33 paragraphs 19 and 20 could be made to address this issue. Other Board members agreed that there was no reason not to address this. FASB staff present by video link suggested that, if the IASB were to propose such a change in its ED, the FASB might consider it in their redeliberations.

The FASB staff queried whether the elimination of the 'if converted' method is appropriate for convertible equity instruments. Board members saw no conceptual difference, for this purpose, between debt and senior equity securities: both have a prior claim on the residual net assets of the entity. The standard would be cleaner if the 'if converted' method was eliminated for all convertible instruments.

The Board agreed that the proposals would be issued for a 90-day comment period.

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