A.8 Denominator for Diluted EPS: Contingently Issuable Shares
The principles in U.S. GAAP are similar to those in IFRS Accounting
Standards with respect to the inclusion of contingently issuable shares in the denominator
for diluted EPS. However, the guidance on this topic may be applied differently under U.S.
GAAP than it is under IFRS Accounting Standards. Under U.S. GAAP, when common shares are
contingently issuable in the future on the basis of the attainment of a specified average
level of earnings, the calculation of the number of shares to be included in the denominator
for diluted EPS, if any, is based only on the actual amount of earnings achieved through the
reporting date (i.e., the entity assumes that the current amount of earnings will not change
and that, therefore, no additional earnings will be achieved in the future). Under IFRS
Accounting Standards, if the specified average level of earnings has been achieved as of the
reporting date, the entity assumes that the same level of earnings will be achieved through
the end of the contingency period. See Section 4.5.2.3 for more information about the application of ASC 260 to such
arrangements.
Under U.S. GAAP, ASC
260-10-45-49 states, “For year-to-date [EPS] computations, contingent shares shall be
included on a weighted-average basis. That is, contingent shares shall be weighted for the interim periods in which they were included in the
computation of diluted EPS.” Under IFRS Accounting Standards, paragraph 52 of IAS 33 does
not permit entities to calculate year-to-date contingent shares by weighting the interim
periods. This is consistent with paragraph 29 of IAS 34, which states, in part, that “the
frequency of an entity’s reporting shall not affect the measurement of its annual results.”
See Section 4.9.4 for more
information about the application of ASC 260 to year-to-date calculations.