IFRS/IAS Summary

IAS-33 - Earnings Per Share (Revised Dec 2003)

Objective of IAS 33

The objective of IAS 33 is to prescribe principles for the determination and presentation of earnings per share (EPS) amounts in order to improve performance comparisons between different enterprises in the same period and between different accounting periods for the same enterprise.

Scope

IAS 33 applies to enterprises whose securities are publicly traded or that are in the process of issuing securities to the public. [IAS 33.1] Other enterprises that choose to present EPS information should also comply with the Standard. [IAS 33.4]

If both parent and consolidated statements are presented in a single report, EPS is required only for the consolidated statements. [IAS 33.2]

Key Definitions

Ordinary share: Also known as a common share or common stock. An equity instrument that is subordinate to all other classes of equity shares.

Potential ordinary share: A financial instrument or other contract that could result it its holder getting ordinary shares. Examples include:

convertible debt
convertible preferred shares
share warrants
share options
share rights
employee stock purchase plans
contractual rights to purchase shares
contingent issuance contracts or agreements (such as those arising in business combination).

Dilution: A potential reduction in net profit per share or increase in net loss per share resulting from conversion of potential ordinary shares into ordinary shares -- conversion of convertible securities, exercise of warrants, options, and rights, or issuance of additional shares under stock purchase plans or contingent issuance agreements.

Requirement to Present EPS

An enterprise whose securities are publicly traded must present basic and diluted EPS on the face of its income statement for each class of ordinary shares. Basic and diluted EPS must be presented with equal prominence for all periods presented. [IAS 33.47]

Basic EPS

Basic EPS net profit or loss for the period attributable to ordinary shareholders divided by the weighted average number of ordinary shares outstanding during the period. [IAS 33.10]

The earnings numerator used for the calculation should be after deduction of all expenses including tax, extraordinary items and minority interests, and after deduction of preference dividends. [IAS 33.11]

The denominator is calculated by adjusting the shares in issue at the beginning of the period by the number of shares bought back or issued during the period, multiplied by a time-weighting factor determined by reference to the date of issue or date of buy-back of shares. The Standard includes guidance on appropriate recognition dates for shares issued in various circumstances. [IAS 33.14]

Diluted EPS

Diluted EPS is calculated by adjusting the earnings and number of shares for the effects of dilutive options and other dilutive potential ordinary shares. [IAS 33.24] The effects of anti-dilutive potential ordinary shares are ignored in calculating diluted EPS. [IAS 33.38]

The numerator should be adjusted for the after-tax effects of dividends and interest charged in relation to dilutive potential ordinary shares and for any other changes in income that would result from the conversion of the potential ordinary shares. [IAS 33.26]

The denominator should be adjusted for the number of shares that would be issued on the conversion of all of the dilutive potential ordinary shares into ordinary shares. Shares should be deemed to have been converted on the first date of the accounting period or the date of issue, if later. The assumed proceeds from these issues should be considered to have been received from the issue of shares at fair value. The difference between the number of shares issued and the number of shares that would have been issued at fair value should be treated as an issue of ordinary shares for no consideration. [IAS 33.29 and 33.33]

The weighted average number of shares outstanding during the period and for all periods presented should be adjusted for events which change the number of ordinary shares outstanding without a corresponding change in resources e.g. capitalisation/bonus issue, bonus element of any other issue, share split and consolidation of shares. If such changes occur after the balance sheet date, the calculation of EPS should be based on the new number of shares, and the fact that such adjustments have been made should be disclosed. [IAS 33.43]

In addition, all periods presented should be adjusted for prior period adjustments and business combinations accounted for as a uniting of interests. [IAS 33.43]

Diluted EPS for prior periods should not be adjusted for changes in the assumptions used or for the conversion of potential ordinary shares into ordinary shares outstanding. [IAS 33.44]

Presentation and Disclosure

Basic and diluted EPS (or basic and diluted net loss per share) must be presented on the face of the income statement with equal prominence for all periods presented. [IAS 33.47-48] IAS 34.11 requires similar presentation in interim financial reports.

Disclose:

amounts used as numerators in calculating basic and diluted EPS
reconciliation of those amounts to net profit or loss for the period
weighted average number of ordinary shares used as the denominators in calculating basic and diluted EPS
reconciliation of those denominators to each other. [IAS 33.49]

Disclosure of per-share amounts for components or subtotals on the income statement (such as operating income per share or income before taxes per share or income before extraordinary items per share) is neither required nor prohibited. If presented, IAS 33.51 provides guidance for calculating such amounts.

Note: Please note that these summaries are only for reference purposes and are not a substitute for the entire IFRS/IAS. Kindly read the whole text of IFRS/IAS before consulting these summaries.

Summaries are courtesy of Deloitte.

IFRS/IAS Summary

IAS-33 - Earnings Per Share (Revised Dec 2003)

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