Appendix A — Differences Between U.S. GAAP and IFRS Accounting Standards

A.10 Denominator for Diluted EPS: Contracts That May Be Settled in Cash or Shares

Under U.S. GAAP, for contracts that may be settled in cash or stock — except for certain share-based payment arrangements — share settlement is presumed and may not be rebutted if the effect of such settlement is dilutive, regardless of whether such settlement is at the election of the issuer or the holder. Therefore, share settlement must be used in the calculation of diluted EPS if the effect is dilutive. In addition, if dilutive, the numerator in the calculation of diluted EPS must be adjusted when the contract is classified as an asset or liability for accounting purposes. See Section 4.7 for more information.

With one exception, the treatment of diluted EPS under IFRS Accounting Standards is the same as that under U.S. GAAP for contracts that may be settled in cash or shares. Paragraphs 58 and 60 of IAS 33 require an entity to assume share settlement, regardless of whether the election to settle in cash or shares is at the option of the issuer or the holder. Such a presumption cannot be overcome if the effect of share settlement is dilutive. Unlike U.S. GAAP, IFRS Accounting Standards do not provide an exception for share-based payment arrangements in such circumstances.

Both U.S. GAAP and IFRS Accounting Standards address the need to make a numerator adjustment when shares are included in the denominator of diluted EPS and the contract is classified as an asset or liability. However, the U.S. GAAP requirements on this topic may differ from those in IFRS Accounting Standards. Paragraph 59 of IAS 33 indicates that such an adjustment is necessary if the contract has both an equity and a liability component. ASC 260-10-45-46 only permits such an adjustment if the contract is classified as an asset or liability. In addition, there may be other situations in which an entity would be required to adjust the numerator in calculating diluted EPS under IFRS Accounting Standards for a contract that is classified as an asset or liability but would be prohibited from doing so under U.S. GAAP.

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