Earnings per Share: IFRS vs. U.S. GAAP

This article is the twenty-ninth in a series of articles that takes our readers on a journey through International Financial Reporting Standards (IFRS) with a special focus on the standards’ quintessential feature: they are principles-based. In this article, we provide an overview of some of the most significant differences between IFRS and U.S. generally accepted accounting principles (GAAP) with regard to the calculation of earnings per share (EPS). Actual differences in the accounting treatment between the two frameworks depend on specific circumstances.

The standard that addresses earnings per share under IFRS is International Accounting Standard 33, Earnings per Share. Under U.S. GAAP, this topic is addressed in FASB Accounting Standards Codification (ASC) Topic 260, Earnings Per Share, which codifies FASB Statement No. 128, Earnings per Share, and a series of Emerging Issues Task Force Issues. The International Accounting Standards Board and the Financial Accounting Standards Board currently are in the midst of a short-term convergence project to reduce the differences between IFRS and U.S. GAAP with regard to the calculation of earnings per share. The following table summarizes the existing differences between IAS 33 and ASC 260 as identified by the Boards while working on the convergence project.

Topic	IAS 33	ASC 260
Contracts that may be settled in ordinary shares or cash	IAS 33 presumes that the contract will be settled in ordinary shares; thus, the resulting potential ordinary shares affect diluted EPS if they are dilutive.	The presumption that the contract is settled in shares may be overcome if past experience or a stated policy provides a reasonable basis for believing that the contract will be paid partially or wholly in cash.
Year-to-date calculations	Dilutive potential ordinary shares are determined independently for each period presented. Therefore, the number of dilutive potential ordinary shares included in the year-to-date period is not a weighted average of the dilutive potential ordinary shares in each interim calculation.	Requires the number of potential ordinary shares included in quarterly diluted EPS to be determined for year-to-date periods on a weighted-average basis.

Topic	IAS 33	ASC 260
Contracts to repurchase an entity’s own shares	Ordinary shares subject to a contract to repurchase for cash or other financial assets are treated as not outstanding for the calculation of basic EPS. For diluted EPS, if the contract is dilutive, the denominator is adjusted.	The denominator of the basic and diluted EPS calculation excludes ordinary shares that are to be redeemed or repurchased.
Participating instruments and two-class ordinary shares	For the purpose of calculating diluted EPS, conversion is assumed for participating equity instruments and two-class ordinary shares that are convertible into ordinary shares if the effect is dilutive. For those instruments that are not convertible into ordinary shares, profit or loss for the period is allocated to the different classes of shares and participating equity instruments in accordance with their dividend rights or other rights to participate in undistributed earnings.	ASC 260 currently does not state explicitly how to calculate diluted EPS for those instruments.
Mandatorily convertible instruments	Basic EPS includes ordinary shares that will be issued upon conversion of a mandatorily convertible instrument from the date the contract is entered into.	Basic EPS does not include those instruments until they are converted into common (ordinary) shares.

For further information, please contact Bob Dohrer (robert.dohrer@rsmi.com) or Marco Marcellan (marco.marcellan@rsmi.com) in our International Assurance Services Group.

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