A.9 Denominator for Diluted EPS: Contingently Convertible Instruments
Under U.S. GAAP,ASC 260-10-45-43 and 45-44 address when the
if-converted method should be applied to convertible instruments that are
contingently convertible on the basis of a market price trigger. In accordance with
this guidance, as well as the guidance related to contingently issuable shares, the
if-converted method is applied to contingently convertible instruments as follows:
- If the instrument becomes convertible only if (1) a specified price of the entity’s common stock (i.e., a market price trigger) is achieved or (2) either a market-price trigger or some other non-market-based condition is met, the if-converted method should be applied, if dilutive, regardless of whether the conditions are met.
- If the instrument becomes convertible only if (1) a substantive non-market-based condition is met or (2) a market price trigger and some other substantive non-market-based condition are met, the if-converted method should be applied only if the non-market-based condition has been met as of the end of the reporting period.
See Section 4.4.3 for more information about
contingently convertible instruments.
Under IFRS Accounting Standards, paragraph 54 of IAS 33 indicates
that the calculation of diluted EPS is based on the number of ordinary shares that
would be issued if the market price at the end of the reporting period was the
market price at the end of the contingency period. Therefore, shares issuable upon
conversion of a convertible instrument that contains a market price trigger would be
included in the calculation of diluted EPS only if the market price trigger has been
achieved as of the reporting date. The same guidance would apply to convertible
instruments for which conversion is permitted only upon satisfaction of a
non-market-based condition.