IAS 33 – Earnings per share calculations for non-cumulative preferred dividends (new)
The Committee received a request for clarification on the period on which a dividend on non-cumulative preference shares should result in an adjustment to the EPS calculation. The preference shares in questions have the following characteristics: (1) classified as equity, (2) there is no contractual requirement to declare a preference dividend in any given period, (3) when a dividend is proposed on the ordinary shares, a preference dividend must be declared in the same period with a contractually fixed ratio, and (4) the preference dividends are non-cumulative.
Paragraph 14(a) of IAS 33 Earnings Per Share provides that the after-tax amount of preference dividends that is deducted from the net profit or loss is the after-tax amount of any preference dividends on non-cumulative preference shares 'declared in respect of the period'. The submitter of the request believes that entities are adjusting EPS for non-cumulative preference dividends in two ways (1) when the directors propose the dividend (even though they are not recognised until they are approved by the shareholders after the year) or (2) when the preference dividends are recognised in the financial statements even though the directors' rationale for proposing the preference dividends is based on the previous year's profits.
The staff recommended the Committee not take the item on to its agenda and included the following as part of a draft agenda decision:
“The Committee noted that paragraph A14 of IAS 33 would require the preference dividends considered to be taken into account in the calculation of EPS on the notional basis that all of the net profit or loss for the period was distributed to each class of equity instrument. In other words, the Committee noted that the declaration of the preference dividends should not affect the calculation of EPS.”
Some of the Committee members agreed with the staff's overall conclusion but questioned their analysis and suggested improvement to the draft agenda decision. The Committee ultimately decided not to reject taking the item on to its agenda at this point, but rather asked the staff to consider the feedback provided by the Committee and to bring back a proposal to the Committee during a future meeting.