IAS 33 Earnings per Share

This revised Standard supersedes IAS 33 (1997) Earnings Per Share and should be applied for annual periodsbeginning on or after 1 January 2005. Earlier application is encouraged.

Contents


paragraphs
Introduction IN1-IN3
International Accounting Standard 33 Earnings perShare
Objective 1
Scope 2-4
Definitions 5-8
Measurement 9-63
Basic Earnings per Share 9-29
Earnings 12-18
Shares 19-29
Diluted Earnings per Share 30-63
Earnings 33-35
Shares 36-40
Dilutive Potential Ordinary Shares 41-63
Options, warrants and their equivalents45-48
Convertible instruments 49-51
Contingently issuable shares 52-57
Contracts that may be settled in ordinaryshares or cash 58-61
Purchased options 62
Written put options 63
Retrospective adjustments 64-65
Presentation 66-69
Disclosure 70-73
Effective date 74
Withdrawal of other pronouncements 75-76
Appendices:
A. Application Guidance
B. Amendments to Other Pronouncements
Approval of IAS 33 by the Board
Basis for conclusions
Illustrative examples
Table of concordance

International Accounting Standard 33 Earningsper 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 theStandard when it was adopted by the IASB. IAS 33 should be read in the contextof its objective and the Basis for Conclusions, thePreface toInternational Financial Reporting Standards and the Frameworkfor the Preparation and Presentation of Financial Statements. IAS 8 Accounting Policies, Changes in Accounting Estimates and Errorsprovidesa basis for selecting and applying accounting policies in the absence ofexplicit guidance.

Introduction


IN1. International Accounting Standard 33 Earnings per Share (IAS 33) replaces IAS 33Earnings Per Share (issued in 1997), and should be applied forannual periods beginning on or after 1 January 2005. Earlier application isencouraged. The Standard also replaces SIC-24 Earnings PerShare-Financial Instruments and Other Contracts that May Be Settled in Shares.

Reasons for Revising IAS 33


IN2. The International Accounting StandardsBoard has developed this revised IAS 33 as part of its project on Improvementsto International Accounting Standards. The project was undertaken in the lightof queries and criticisms raised in relation to the Standards by securitiesregulators, professional accountants and other interested parties. Theobjectives of the project were to reduce or eliminate alternatives,redundancies and conflicts within the Standards, to deal with some convergenceissues and to make other improvements.
IN3. For IAS 33 the Board's main objectivewas a limited revision to provide additional guidance and illustrative exampleson selected complex matters, such as the effects of contingently issuableshares; potential ordinary shares of subsidiaries, joint ventures orassociates; participating equity instruments; written put options; purchasedput and call options; and mandatorily convertible instruments. The Board didnot reconsider the fundamental approach to the determination and presentationof earnings per share contained in IAS 33.

Objective
1. 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.
Scope
2. This Standard shall be applied by entities whose ordinary shares or potential ordinary shares are publicly traded and by entities that are in the process of issuing ordinary shares or potential ordinary shares in public markets.
3. An entity that discloses earnings per share shall calculate and disclose earnings per share in accordance with this Standard.
4. When an entity presents both consolidated financial statements and separate financial statements prepared in accordance with IAS 27 Consolidated and Separate Financial Statements, 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 on the face of its separate income statement. An entity shall not present such earnings per share information in the consolidated financial statements.

Definitions
5. The following terms are used in this Standard with the meanings specified:
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.
6. 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.
7. Examples of potential ordinary shares are:
(a) financial liabilities or equity instruments, including preference shares, that are convertible into ordinary shares;
(b) options and warrants;
(c) shares that would be issued upon the satisfaction of conditions resulting from contractual arrangements, such as the purchase of a business or other assets.
8. Terms defined in IAS 32 Financial Instruments: Disclosure and Presentationare 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, equity instrument and fair value, and provides guidance on applying those definitions.

Measurement
Basic Earnings per Share
9. 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.
10. 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.
11. 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.
Earnings
12. For the purpose of calculating basic earnings per share, the amounts attributable to ordinary equity holders of the parent entity in respect of:
(a) profit or loss from continuing operations attributable to the parent entity; and
(b) 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.
13. 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 Presentation of Financial Statements).
14. The after-tax amount of preference dividends that is deducted from profit or loss is:
(a) the after-tax amount of any preference dividends on non-cumulative preference shares declared in respect of the period; and
(b) 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.

15. 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.
16. 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.
17. 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.

18. 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.
Shares
19. 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.
20. 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.

21. 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 example:
(a) ordinary shares issued in exchange for cash are included when cash is receivable;
(b) ordinary shares issued on the voluntary reinvestment of dividends on ordinary or preference shares are included when dividends are reinvested;
(c) 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 accrue;
(d) ordinary shares issued in place of interest or principal on other financial instruments are included from the date that interest ceases to accrue;
(e) ordinary shares issued in exchange for the settlement of a liability of the entity are included from the settlement date;
(f) 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 recognised; and
(g) 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.

22. Ordinary shares issued as part of the cost of a business combination are included in the weighted average number of shares from the acquisition date. This is because the acquirer incorporates into its income statement the acquiree's profits and losses from that date.
Editorial note: Substituted by IFRS 3 with effect for business combinations for which the agreement date is on or after 31 March 2004, subject to further transitional provisions. Previously "Ordinary shares issued as part of the purchase consideration of a business combination that is an acquisition are included in the weighted average number of shares from the date of the acquisition. This is because the acquirer incorporates the results of the operations of the acquiree into its income statement from that date. Ordinary shares issued as part of a business combination that is a uniting of interests are included in the calculation of the weighted average number of shares for all periods presented. This is because the financial statements of the combined entity are prepared as if the combined entity had always existed. Therefore, the number of ordinary shares used for the calculation of basic earnings per share in a business combination that is a uniting of interests is the aggregate of the weighted average number of shares of the combined entities, adjusted to equivalent shares of the entity whose shares are outstanding after the combination.".

23. 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.
24. 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.
25. 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.

26. 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.
27. Ordinary shares may be issued, or the number of ordinary shares outstanding may be reduced, without a corresponding change in resources. Examples include:
(a) a capitalisation or bonus issue (sometimes referred to as a stock dividend);
(b) a bonus element in any other issue, for example a bonus element in a rights issue to existing shareholders;
(c) a share split; and
(d) a reverse share split (consolidation of shares).