IAS 33-Earnings Per Share
Objective of IAS 33
The objective of IAS 33 is to prescribe principles for determining and presenting earnings per share (EPS) amounts to improve performance comparisons between different entities in the same reporting period and between different reporting periods for the same entity.
IAS 33 applies to entities whose securities are publicly traded or that are in the process of issuing securities to the public. Other entities that choose to present EPS information must also comply with IAS 33.
If both parent and consolidated statements are presented in a single report, EPS is required only for the consolidated statements.
Ordinary share: also known as a common share or common stock. An equity instrument that is subordinate to all other classes of equity instruments.
Potential ordinary share: a financial instrument or other contract that may entitle its holder to ordinary shares.
|Common examples of potential ordinary shares|
Dilution: a reduction in earnings per share or an increase in loss per share resulting from the assumption that convertible instruments are converted, that options or warrants are exercised, or that ordinary shares are issued upon the satisfaction of specified conditions.
Antidilution: an increase in earnings per share or a reduction in loss per share resulting from the assumption that convertible instruments are converted, that options or warrants are exercised, or that ordinary shares are issued upon the satisfaction of specified conditions.
Requirement to present EPS
An entity whose securities are publicly traded (or that is in process of public issuance) must present, on the face of the statement of comprehensive income, basic and diluted EPS for:
- profit or loss from continuing operations attributable to the ordinary equity holders of the parent entity; and
- profit or loss attributable to the ordinary equity holders of the parent entity for the period for each class of ordinary shares that has a different right to share in profit for the period.
If an entity presents the components of profit or loss in a separate income statement, it presents EPS only in that separate statement.
Basic and diluted EPS must be presented with equal prominence for all periods presented.
Basic and diluted EPS must be presented even if the amounts are negative (that is, a loss per share).
If an entity reports a discontinued operation, basic and diluted amounts per share must be disclosed for the discontinued operation either on the face of the of comprehensive income (or separate income statement if presented) or in the notes to the financial statements.
Basic EPS is calculated by dividing profit or loss attributable to ordinary equity holders of the parent entity (the numerator) by the weighted average number of ordinary shares outstanding (the denominator) during the period.
The earnings numerators (profit or loss from continuing operations and net profit or loss) used for the calculation should be after deducting all expenses including taxes, minority interests, and preference dividends.
The denominator (number of shares) 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. IAS 33 includes guidance on appropriate recognition dates for shares issued in various circumstances.
Contingently issuable shares are included in the basic EPS denominator when the contingency has been met.
Basic earnings per share (EPS)=Profit/ (loss) attributable to ordinary shareholders / Weighted average number of ordinary shares
1. The profit attributable to ordinary shareholders is profit after tax:
- Attributable to the owners of the parent and
- After deducting preference share dividends that are not included within finance costs (i.e. irredeemable preference shares).
2. The weighted average number of ordinary shares is calculated by:
- Pro-rating the number of shares outstanding where there has been share issue in the period.
- Adjusting any shares in issue before a bonus issue by a bonus fraction
- Adjusting any shares in issue before a rights issue by a bonus fraction.
The bonus fraction for a bonus issue is: Number of shares in issue post bonus issue / Number of shares in issue in issue pre bonus issue
The bonus fraction for a rights issue is: Pre rights issue price of shares / Theorical ex-rights price (TERP)
The theoretical ex-rights price (TERP) is calculated as: (Total market value of shares pre rights issue + proceeds of rights issue ) / Number of shares post rights issue
Diluted EPS is calculated by adjusting the earnings and number of shares for the effects of dilutive options and other dilutive potential ordinary shares. The effects of anti-dilutive potential ordinary shares are ignored in calculating diluted EPS.
|Guidance on calculating dilution|
|Convertible securities. 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. The denominator should include shares that would be issued on the conversion.
Options and warrants. In calculating diluted EPS, assume the exercise of outstanding dilutive options and warrants. The assumed proceeds from exercise should be regarded as having been used to repurchase ordinary shares at the average market price during the period. The difference between the number of ordinary shares assumed issued on exercise and the number of ordinary shares assumed repurchased shall be treated as an issue of ordinary shares for no consideration.
Contingently issuable shares. Contingently issuable ordinary shares are treated as outstanding and included in the calculation of both basic and diluted EPS if the conditions have been met. If the conditions have not been met, the number of contingently issuable shares included in the diluted EPS calculation is based on the number of shares that would be issuable if the end of the period were the end of the contingency period. Restatement is not permitted if the conditions are not met when the contingency period expires.
Contracts that may be settled in ordinary shares or cash. Presume that the contract will be settled in ordinary shares, and include the resulting potential ordinary shares in diluted EPS if the effect is dilutive.
Diluted earnings per share = Profit for basic EPS adjusted for effect of dilutive potential ordinary shares / Number of shares for basic’s EPS adjusted for dilutive potential ordinary shares.
Potential ordinary shares are dilutive when their conversion would decrease net profit per share.
Potential ordinary shares include options, conversion instruments (e.g. loan stock or performance shares) and contingently issuable shares.
Where there are a number of groups of potential ordinary shares in issue, the effects of these are added into the DEPS calculation one by one, starting with most dilutive. Diluted EPS is the lowest EPS calculated at any stage.
The calculation of basic and diluted EPS for all periods presented is adjusted retrospectively when the number of ordinary or potential ordinary shares outstanding increases as a result of a capitalisation, bonus issue, or share split, or decreases as a result of a reverse share split. If such changes occur after the balance sheet date but before the financial statements are authorised for issue, the EPS calculations for those and any prior period financial statements presented are based on the new number of shares. Disclosure is required.
Basic and diluted EPS are also adjusted for the effects of errors and adjustments resulting from changes in accounting policies, accounted for retrospectively.
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 requires an entity to disclose:
- the amounts used as the numerators in calculating basic and diluted earnings per share, and a reconciliation of those amounts to profit or loss.
- the weighted average number of ordinary shares used as the denominator in calculating basic and diluted earnings per share, and a reconciliation of these denominators to each other.
- a description of any other instruments (including contingently issuable shares) that could potentially dilute basic earnings per share in the future, but that were not included in the calculation of diluted earnings per share.
- a description of ordinary share transactions that occur after the reporting period and that could have changed the EPS calculations significantly if those transactions had occurred before the end of the reporting period.
- Phnom Penh HR
- iasplus. com /en/standards/ias/ias33
- ifrs. org /issued-standards/list-of-standards/ias-33-earnings-per-share/
- TALBI, Hicham. IAS – IFRS Standards : Understand and practice IAS/IFRS standards through example cases and corrected exercises