Earnings Per Share Standard Is Finalized
T he International Accounting Standards Committee issued International Accounting Standard (IAS) no. 33, Earnings Per Share . The IASC worked closely with the Financial Accounting Standards Board in drafting the standard, which is very similar to the recently released FASB Statement no. 128, Earnings per Share .
EPS is widely used in capital markets as a first guide to company performance. The new IAS requires companies to disclose
- A basic EPS number obtained by dividing net profit or loss attributable to ordinary shareholders by the number of ordinary shares.
- A diluted EPS number used to warn investors of reductions in the value of EPS.
The main difference between the two standards is that FASB Statement no. 128 requires more disclosure than IAS no. 33. The FASB requires the disclosure of per-share amounts for income from continuing operations on the face of the income statements and for extraordinary items, accounting changes and discontinued operations. The IASC requires only net profit per-share amounts on the face of the income statements and encourages other disclosures.
"We are very pleased to have come up with a pair of statements essentially in tune with each other," said Douglas Brooking, chairman of the IASC EPS steering committee. "It was a breakthrough experience to work as closely as we did with the FASB."
Brooking said the IASC would now pursue standardizing the method companies use to determine earnings. "There still is a major debate around the world on how to determine the numerator, or the earnings figure of the EPS calculation. I am hopeful we will agree on a common definition within the next few years."
IAS no. 33 will be effective for financial statements covering
periods beginning on or after January 1, 1988, with earlier
application encouraged. Copies are available for $24 by writing the
IASC at 167 Fleet Street, London EC4A 2ES, England, or calling
011-44-171-353-0565, by fax at 011-44-171-353-0562 or by e-mail at firstname.lastname@example.org .