Review team affirms FASB’s earnings-per-share standard

By Ken Tysiac

FASB’s earnings-per-share standard accomplished its objectives of simplifying computations of earnings per share and achieving more comparability with international accounting standards, a Financial Accounting Foundation post-implementation review team reported Wednesday.

The post-implementation review team based its conclusions on input from financial statement users, preparers, auditors, and regulators. The team reviewed FASB Statement No. 128, Earnings Per Share, which was issued in 1997, and concluded that:

  • Investors rely significantly on earnings per share (particularly diluted earnings per share) that is computed using the requirements of Statement No. 128. Investors also find the information reported by organizations about earnings per share in their financial statements useful, the review team found.
  • Overall, Statement No. 128 is understandable, can be applied as intended, and enables information to be reported reliably. Organizations with complex capital structures sometimes find it difficult to apply the standard because of the complexity of the financial instruments that they issue.
  • The changes to financial and operating practices as a result of Statement No. 128 were neither significant nor unexpected. No significant unanticipated consequences occurred as a result of the standard, and implementation and ongoing compliance costs were neither significant nor unexpected.

“The … report on Statement 128 tells us that, overall, the standard on earnings per share is useful to investors and brought about greater comparability with International Financial Reporting Standards,” FASB Chairman Russell Golden said in a statement. “Though organizations with complex capital structures sometimes find the standard difficult to apply, overall the standard is operational. Therefore, the FASB does not plan to undertake a comprehensive review of Statement 128.”

Because the post-implementation review team has completed all reviews of significant FASB standards that have been effective for at least two to three years, the next post-implementation review of a FASB standard will not be conducted for a few years.

Ken Tysiac (ktysiac@aicpa.org) is a JofA editorial director.

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