International Accounting Standard 33
Earnings per Share
In April 2001 the International Accounting Standards Board (IASB) adopted IAS 33 Earnings per Share, which had been issued by the International Accounting Standards Committee in February 1997.
In December 2003 the IASB revised IAS 33 and changed the title to Earnings per Share. This
IAS 33 also incorporated the guidance contained in a related Interpretation (SIC-24 Earnings Per Share—Financial Instruments and Other Contracts that May be Settled in Shares).
Other IFRSs have made minor consequential amendments to IAS 33. They include IFRS 10
Consolidated Financial Statements (issued May 2011), IFRS 11 Joint Arrangements (issued May 2011), IFRS 13 Fair Value Measurement (issued May 2011) and Presentation of Items of Other Comprehensive Income (Amendments to IAS 1) (issued June 2011).
INTERNATIONAL ACCOUNTING STANDARD 33
EARNINGS PER SHARE
Basic earnings per share
Diluted earnings per share
Dilutive potential ordinary shares
Options, warrants and their equivalents
Contingently issuable shares
Contracts that may be settled in ordinary shares or cash
Purchased options Written put options
WITHDRAWAL OF OTHER PRONOUNCEMENTS
A Application guidance
B Amendments to other pronouncements
FOR THE ACCOMPANYING DOCUMENTS LISTED BELOW, SEE PART B OF THIS
APPROVAL BY THE BOARD OF IAS 33 ISSUED IN DECEMBER 2003
BASIS FOR CONCLUSIONS ILLUSTRATIVE EXAMPLES
International Accounting Standard 33 Earnings per Share (IAS 33) is set out in paragraphs 1-76 and Appendices A and B. All the paragraphs have equal authority but retain the IASC format of the Standard when it was adopted by the IASB. IAS 33 should be read in the context of its objective and the Basis for Conclusions, the Preface to International Financial Reporting Standards and the Conceptual Framework for Financial Reporting. IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies in the absence of explicit guidance.
International Accounting Standard 33 Earnings per Share (IAS 33) replaces IAS 33 Earnings Per Share (issued in 1997), and should be applied for annual periods beginning on or after 1 January 2005. Earlier application is encouraged.
The Standard also replaces SIC-24 Earnings Per Share—Financial Instruments and Other Contracts that May Be Settled in Shares.
Reasons for revising IAS 33
The International Accounting Standards Board has developed this revised IAS 33 as part of its project on Improvements to International Accounting Standards. The project was undertaken in the light of queries and criticisms raised in relation to the Standards by securities regulators, professional accountants and other interested parties. The objectives of the project were to reduce or eliminate alternatives, redundancies and conflicts within the Standards, to deal with some convergence issues and to make other improvements.
For IAS 33 the Board's main objective was a limited revision to provide additional guidance and illustrative examples on selected complex matters, such as the effects of contingently issuable shares; potential ordinary shares of subsidiaries, joint ventures or associates; participating equity instruments; written put options; purchased put and call options; and mandatorily convertible instruments. The Board did not reconsider the fundamental approach to the determination and presentation of earnings per share contained in IAS 33.
International Accounting Standard 33
Earnings per Share
The objective of this Standard is to prescribe principles for the determination and presentation of earnings per share, so as to improve performance comparisons between different entities in the same reporting period and between different reporting periods for the same entity. Even though earnings per share data have limitations because of the different accounting policies that may be used for determining 'earnings', a consistently determined denominator enhances financial reporting. The focus of this Standard is on the denominator of the earnings per share calculation.
This Standard shall apply to
the separate or individual financial statements of an entity:
whose ordinary shares or potential ordinary shares are traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets)
that files, or is in the process of filing, its financial statements with a securities commission or other regulatory organisation for the purpose of issuing ordinary
shares in a public market; and
the consolidated financial statements of a group with a parent:
whose ordinary shares or potential ordinary shares are traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local
and regional markets) or
that files, or is in the process of filing, its financial statements with a securities commission or other regulatory organisation for the purpose of issuing ordinary shares in a public market.
An entity that discloses earnings per share shall calculate and disclose
earnings per share in accordance with this Standard.
When an entity presents both consolidated financial statements and
separate financial statements prepared in accordance with IFRS 10 Consolidated Financial Statements and IAS 27 Separate Financial Statements respectively, the disclosures required by this Standard need be presented only on the basis of the consolidated information. An entity that chooses to disclose earnings per share based on its separate financial statements shall present such earnings per share information only in its
statement of comprehensive income. An entity shall not present such earnings per share information in the consolidated financial statements.
If an entity presents items of profit or loss in a separate statement as described in paragraph 10A of IAS 1 Presentation of Financial Statements
(as amended in 2011), it presents earnings per share only in that separate statement.
The following terms are used in this Standard with the meanings
Antidilution is 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.
A contingent share agreement is an agreement to issue shares that is
dependent on the satisfaction of specified conditions.
Contingently issuable ordinary shares are ordinary shares issuable for
little or no cash or other consideration upon the satisfaction of specified conditions in a contingent share agreement.
Dilution is 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.
Options, warrants and their equivalents are financial instruments that
give the holder the right to purchase ordinary shares.
An ordinary share is an equity instrument that is subordinate to all other
classes of equity instruments.
A potential ordinary share is a financial instrument or other contract
that may entitle its holder to ordinary shares.
Put options on ordinary shares are contracts that give the holder the
right to sell ordinary shares at a specified price for a given period.
Ordinary shares participate in profit for the period only after other types of
shares such as preference shares have participated. An entity may have more than one class of ordinary shares. Ordinary shares of the same class have the same rights to receive dividends.
Examples of potential ordinary shares are:
financial liabilities or equity instruments, including preference shares,
that are convertible into ordinary shares;
options and warrants;
shares that would be issued upon the satisfaction of conditions resulting
from contractual arrangements, such as the purchase of a business or other assets.
Terms defined in IAS 32 Financial Instruments: Presentation are used in this
Standard with the meanings specified in paragraph 11 of IAS 32, unless otherwise noted. IAS 32 defines financial instrument, financial asset, financial liability and equity instrument, and provides guidance on applying those definitions. IFRS 13 Fair Value Measurement defines fair value and sets out
requirements for applying that definition.
Basic earnings per share
An entity shall calculate basic earnings per share amounts for profit or
loss attributable to ordinary equity holders of the parent entity and, if presented, profit or loss from continuing operations attributable to those equity holders.
Basic earnings per share shall be 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 objective of basic earnings per share information is to provide a measure of the interests of each ordinary share of a parent entity in the performance of the entity over the reporting period.
For the purpose of calculating basic earnings per share, the amounts attributable to ordinary equity holders of the parent entity in respect of:
profit or loss from continuing operations attributable to the
parent entity; and
profit or loss attributable to the parent entity
shall be the amounts in (a) and (b) adjusted for the after-tax amounts of
preference dividends, differences arising on the settlement of preference shares, and other similar effects of preference shares classified as equity.
All items of income and expense attributable to ordinary equity holders of the parent entity that are recognised in a period, including tax expense and dividends on preference shares classified as liabilities are included in the determination of profit or loss for the period attributable to ordinary equity holders of the parent entity (see IAS 1).
The after-tax amount of preference dividends that is deducted from profit or loss
the after-tax amount of any preference dividends on non-cumulative
preference shares declared in respect of the period; and
the after-tax amount of the preference dividends for cumulative
preference shares required for the period, whether or not the dividends have been declared. The amount of preference dividends for the period
does not include the amount of any preference dividends for cumulative preference shares paid or declared during the current period in respect of previous periods.
Preference shares that provide for a low initial dividend to compensate an entity for selling the preference shares at a discount, or an above-market dividend in later periods to compensate investors for purchasing preference shares at a premium, are sometimes referred to as increasing rate preference shares. Any original issue discount or premium on increasing rate preference shares is amortised to retained earnings using the effective interest method and treated as a preference dividend for the purposes of calculating earnings per share.
Preference shares may be repurchased under an entity's tender offer to the holders. The excess of the fair value of the consideration paid to the preference shareholders over the carrying amount of the preference shares represents a return to the holders of the preference shares and a charge to retained earnings for the entity. This amount is deducted in calculating profit or loss attributable to ordinary equity holders of the parent entity.
Early conversion of convertible preference shares may be induced by an entity through favourable changes to the original conversion terms or the payment of additional consideration. The excess of the fair value of the ordinary shares or other consideration paid over the fair value of the ordinary shares issuable under the original conversion terms is a return to the preference shareholders, and is deducted in calculating profit or loss attributable to ordinary equity holders of the parent entity.
Any excess of the carrying amount of preference shares over the fair value of the consideration paid to settle them is added in calculating profit or loss attributable to ordinary equity holders of the parent entity.
For the purpose of calculating basic earnings per share, the number of ordinary shares shall be the weighted average number of ordinary shares outstanding during the period.
Using the weighted average number of ordinary shares outstanding during the period reflects the possibility that the amount of shareholders' capital varied during the period as a result of a larger or smaller number of shares being outstanding at any time. The weighted average number of ordinary shares outstanding during the period is the number of ordinary shares outstanding at the beginning of the period, adjusted by the number of ordinary shares bought back or issued during the period multiplied by a time-weighting factor. The time-weighting factor is the number of days that the shares are outstanding as a proportion of the total number of days in the period; a reasonable
approximation of the weighted average is adequate in many circumstances.
Shares are usually included in the weighted average number of shares from the date consideration is receivable (which is generally the date of their issue), for
ordinary shares issued in exchange for cash are included when cash is
ordinary shares issued on the voluntary reinvestment of dividends on ordinary or preference shares are included when dividends are
ordinary shares issued as a result of the conversion of a debt instrument
to ordinary shares are included from the date that interest ceases to
ordinary shares issued in place of interest or principal on other financial
instruments are included from the date that interest ceases to accrue;
ordinary shares issued in exchange for the settlement of a liability of the
entity are included from the settlement date;
ordinary shares issued as consideration for the acquisition of an asset
other than cash are included as of the date on which the acquisition is
ordinary shares issued for the rendering of services to the entity are
included as the services are rendered.
The timing of the inclusion of ordinary shares is determined by the terms and conditions attaching to their issue. Due consideration is given to the substance of any contract associated with the issue.
rdinary shares issued as part of the consideration transferred in a business combination are included in the weighted average number of shares from the acquisition date. This is because the acquirer incorporates into its statement of comprehensive income the acquiree's profits and losses from that date.
Ordinary shares that will be issued upon the conversion of a mandatorily convertible instrument are included in the calculation of basic earnings per share from the date the contract is entered into.
Contingently issuable shares are treated as outstanding and are included in the calculation of basic earnings per share only from the date when all necessary conditions are satisfied (ie the events have occurred). Shares that are issuable solely after the passage of time are not contingently issuable shares, because the passage of time is a certainty. Outstanding ordinary shares that are contingently returnable (ie subject to recall) are not treated as outstanding and are excluded from the calculation of basic earnings per share until the date the shares are no longer subject to recall.
The weighted average number of ordinary shares outstanding during the period and for all periods presented shall be adjusted for events, other than the conversion of potential ordinary shares, that have changed the number of ordinary shares outstanding without a corresponding change in resources.
Ordinary shares may be issued, or the number of ordinary shares outstanding may be reduced, without a corresponding change in resources. Examples
a capitalisation or bonus issue (sometimes referred to as a stock
a bonus element in any other issue, for example a bonus element in a
rights issue to existing shareholders;
a share split; and
a reverse share split (consolidation of shares).
In a capitalisation or bonus issue or a share split, ordinary shares are issued to existing shareholders for no additional consideration. Therefore, the number of ordinary shares outstanding is increased without an increase in resources. The number of ordinary shares outstanding before the event is adjusted for the proportionate change in the number of ordinary shares outstanding as if the event had occurred at the beginning of the earliest period presented. For example, on a two-for-one bonus issue, the number of ordinary shares outstanding before the issue is multiplied by three to obtain the new total number of ordinary shares, or by two to obtain the number of additional ordinary shares
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