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

A.3 Numerator (Earnings): Forward and Option Contracts for Which Physical Settlement by Repurchase of Equity Shares Is or May Be Required

Under U.S. GAAP, ASC 480-10-30-7 and ASC 480-10-35-5 indicate that other than forward contracts that must be physically settled by purchase of a fixed number of outstanding shares, forward and option contracts for which physical settlement by repurchase of outstanding shares is or may be required are accounted for at fair value, with changes in fair value recognized in earnings. Such contracts include:

Forward contracts to purchase outstanding shares that give the counterparty (holder) the option to elect either gross physical or net settlement.
Written options that give the counterparty a right to put outstanding shares back to the issuer regardless of the form of settlement (i.e., gross physical or net settlement).

Under U.S. GAAP, no adjustments are made to the numerator or denominator for basic EPS for these types of contracts. In accordance with ASC 260-10-45-35 and 45-36, for these types of contracts, diluted EPS is calculated by using the reverse treasury stock method to the extent that the effect is dilutive. As discussed in Section 4.3, an adjustment to the numerator is required under the reverse treasury stock method because these contracts are classified as assets or liabilities for accounting purposes.

Under IFRS Accounting Standards, any contract that may result in a requirement for the issuer to gross-settle a repurchase of its own equity instruments for cash or other financial assets is classified as a financial liability. The financial liability is measured at the gross present value amount that the issuer could be forced to pay to repurchase its own equity. This treatment applies irrespective of whether the amount to be repaid to repurchase the entity’s own equity is fixed or variable or whether the counterparty has a choice between settling net and settling gross. In addition, it applies to both forward purchase contracts and written put options.

IFRS Accounting Standards are similar to U.S. GAAP in that no adjustments to the numerator or denominator are made for basic EPS. In accordance with paragraph 63 of IAS 33, diluted EPS is calculated by using the reverse treasury stock method to the extent the effect is dilutive. Although the methods for calculating EPS are the same under U.S. GAAP as they are under IFRS Accounting Standards for both basic and diluted EPS, EPS amounts may differ because of the differences in the numerator.

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