Introduction
The International Accounting Standards (IAS) is an international body that regulates accounting standards globally through the coordination of the International Accounting Standards Board while the International Financial Reporting Standards is regulated by the International Financial Reporting Interpretations Committee. The IAS was initially established in 1960 but commenced its operations in 1966. The IAS started from IAS 1 till IAS 41 in 2000. The IASC (International Accounting Standards Committee) was founded in 1973 to oversee the operations of the IASC lasted until 2001 when it was restructured and changed to IASB (International Accounting Standards Board) and the new standards were referred to as the International Financial Reporting Standards. The IFRS was structured to accommodate and adapt the IAS and all the future standards and they were to be referred to as the IFRS (IFRS 3). All the standards that were under IAS were adopted by IFRS when these standards were established from IAS 1 to IAS 41 however all other new standards were structured as per the requirements of the IFRS in 2001.
The implication for their application is that all the IFRS standards have superseded the IAS and any contradictory principle in IAS standards would be superseded with the IFRS standard.
The IAS 33, earnings per share were issued on January 1, 2011, and it was effective from the same date that it was issued. EPS is the value of total earnings in a company divided by the total number of outstanding shares of all common stock. In the US, the law requires that all four categories of EPS be published for all public companies. These are EPS for all continuing operations, net income, discontinued operations, and extraordinary items. The objective for issuing the IAS 33 was to augment the principles of earnings per share, determination, and presentation to improve comparisons between the performances of different companies but in a similar financial period. The IAS 33 focuses on the denominator that makes up the EPS calculations. The standard applies to all entities whose ordinary shares are traded publicly. Also to all entities with potential ordinary shareholders and to all those entities that are about to issue ordinary shares in the stock market. All entities disclosing EPS shall calculate and also disclose the same as per the requirements of IAS 33.
All entities must include in the income statement basic as well as diluted EPS on the profit and loss account as attributable to ordinary equity shareholders for parent equity and all the periods and for each category of ordinary shares including those that have different rights to the share of the profits. The EPS presented as basic or dilute shall be presented with equal prominence.
Companies that report any discontinued business operation must also report the basic and diluted EPS for those business operations either in the income statement or in the notes section (American Institute of Certified Public Accountants 15).
The Basic EPS (Earnings per share)
The EPS is calculated by dividing the net income that is attributed to all the equity holders (numerator) or of the parent company by the weighted average total ordinary shares outstanding for the interest of all the other potential ordinary shares (IFRS Technical summaries 2). Dilution means the reduction in EPS on the assumption that the convertible instruments or options have been converted or warrants or even security options have been exercised (Deloite 2014).
When calculating diluted EPS all the ordinary shares shall consist of the weighted average number of the ordinary shares that must be calculated as explained above together with the ordinary shares that have been issued upon the successful completion of the conditions that have been specified above. The following are the initial calculations before the introduction of IAS 33 in 2012.
Calculations as per the new requirement that also includes the EPS on the profit and loss account as attributable to ordinary equity shareholders for parent equity and for all the periods and for each category of ordinary shares including those that have different right to the share of the profits and presented as basic or dilute and presented with equal prominence.
The formula for calculating the
EPS = Earnings per Share = Profit –Preferred dividends/ Weighted Average Common Shares
EPS = Earnings per Share = Net Income – Preferred dividends/ Weighted Average Common Shares
EPS = Earnings per Share = Income from continuing operations –Preferred dividends/ Weighted Average Common Shares
The question is whether the ordinary shares are either anti-dilutive or dilutive when one applies to profit and loss earned from business operations that are attributable directly to the controlling business unit or the original entity as a control number. When confirming whether the firm’s potential ordinary shares are anti-dilutive or dilutive, each type of a company’s ordinary share or issue is separately checked and not as aggregates (Ernst & Young 21).
The firm’s ordinary shares can only be entered in the financial statements as dilutive after their conversion has been made to regular ordinary shares and it has resulted in decreased EPS or increased the loss incurred per ordinary share in business operations.
Adjustments for Past Years
If the total number of all the ordinary or rather the potential ordinary company shares that are outstanding increases in numbers for some reason or as a result of capitalization, share split or bonus issue or if the ordinary shares decrease most likely as a result of the basic EPS or diluted EPS calculations or reversed share split for the periods presented then all the calculations shall be applied in retrospect.
Conclusion
IAS and IFRS defer only on the periods that they were applicable and on some technical concepts that were reviewed after 2001 when IFRS came into existence. The principles of IFRS supersede any contravening principles from the IAS hence most principles of IAS are not applicable if they are in contradiction to the principles of IFRS. The major difference between the initial calculation of EPS under IAS and IFRS was that more information was included in IFRS standards than they were in the IAS standard. IAS only requires one set of diluted and basic EPS from the net income but the IFRS now requires about four sets of EPS that is EPS for the net income, continuing operations, discontinued operations, and extraordinary items.
Works Cited
American Institute of Certified Public Accountants. International Financial Reporting Standards. Durham, NC: AICPA. Web.
Deloite, IFRS in Focus; IASM Standard on Earnings Per Share, IFRS Global Office, 2015. Web.
Chesapeake Energy Corporation, Chesapeake Energy Corporation Form 10-K 2014, Web. 2015.
Ernst & Young, IASB and FASB Earnings per Share — IAS 33, International Financial reporting Standards, Web.
IFRS, International Financial Reporting Standards, Web.
IFRS Technical summaries, International Financial Reporting Standards, Web.
Toyota Motor Corporation, Toyota Motor Corporation Form 20-F, 2010, Web.