Appendix A — Differences Between U.S. GAAP and IFRS Accounting Standards
ASC 260 is the source of guidance on EPS under U.S. GAAP. IAS 33 is
the source of guidance on EPS under IFRS Accounting Standards. Although the methods
used to calculate basic and diluted EPS under IFRS Accounting Standards are similar
to those under U.S. GAAP, there are differences between the two sets of standards
with respect to how the methods are applied. The table below summarizes some of
these differences and is followed by an explanation of each difference.1
Subject
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U.S. GAAP
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IFRS Accounting Standards
|
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Scope
|
Presentation of EPS for investment companies
and wholly owned subsidiaries is not required.
|
There are no scope exceptions related to
presenting EPS for investment companies or wholly owned
subsidiaries.
|
Numerator (earnings)
|
Many accounting differences between U.S.
GAAP and IFRS Accounting Standards affect income available
to common shareholders. These differences will result in
differences in EPS.
|
See U.S. GAAP column.
|
Numerator (earnings): forward and option
contracts for which physical settlement by repurchase of
equity shares is or may be required
|
Other than forward contracts that must be
physically settled by repurchase of a fixed number of the
issuer’s equity shares, forward and option contracts for
which physical settlement by repurchase of equity shares is
or may be required are measured at fair value, with changes
in fair value recognized in earnings. Contracts measured at
fair value include (1) forward contracts to purchase
outstanding shares that give the counterparty (holder) the
option to elect either gross physical or net settlement and
(2) written options that give the counterparty the right to
put outstanding shares to the entity regardless of the form
of settlement (i.e., gross physical or net settlement).
|
Such contracts are liabilities measured on
the basis of the gross present value amount that the issuer
could be required to pay to repurchase its own equity
shares.
Because the accounting differs for these
contracts (except for forward contracts that must be
physically settled), basic and diluted EPS under IFRS
Accounting Standards will differ from basic and diluted EPS
under U.S. GAAP. This is because earnings (i.e., the
numerator) include changes in the fair value of these
contracts under U.S. GAAP, whereas the amount of earnings
under IFRS Accounting Standards is the change in the present
value of the amount that the issuer could be required to pay
to repurchase its own equity shares.
|
Treatment of mandatorily redeemable common
shares and forward contracts for which physical settlement
of a fixed number of shares for cash is required.
|
Basic EPS — Exclude the common shares
(and any related earnings effect) that are to be redeemed or
repurchased in the calculation of EPS. Apply the two-class
method of calculating EPS.
Diluted EPS — No further adjustment
to the numerator or the denominator is necessary.
|
Forward contracts for which physical
settlement of a fixed number of shares for cash is required:
Mandatorily redeemable common shares (basic
and diluted EPS):
These shares are typically excluded from the
denominator.
|
Treatment of mandatorily convertible
instruments
|
If the instrument is a participating
security, entities should apply the two-class method (the
results of doing so are similar to those achieved when an
entity considers the shares outstanding) to calculate basic
EPS and the more dilutive of the two-class method or
if-converted method to calculate diluted EPS.
If the instrument is not a participating
security, entities do not adjust the numerator or
denominator in calculating basic EPS. The if-converted
method is applied to calculate diluted EPS.
|
Ordinary shares that will be issued upon
conversion are considered outstanding in the calculation of
basic EPS from the date the contract is entered into,
irrespective of whether the contract is participating. The
result is similar to that achieved by applying the two-class
method, but the presentation differs. However, the EPS
result differs from that calculated under U.S. GAAP when the
instrument is not a participating security.
For diluted EPS, the shares are considered
outstanding and no adjustment is made to the numerator.
|
Application of the two-class method to
participating securities
|
The two-class method applies to
participating securities irrespective of whether they are
debt or equity instruments. ASC 260 includes detailed
guidance on such application.
|
The two-class method applies only to
participating securities that are equity instruments. It is
not required for participating debt instruments (e.g.,
participating convertible debt). There is no detailed
guidance on such application.
|
Denominator for diluted EPS: treasury stock
method — year-to-date calculation
|
For year-to-date diluted EPS, the number of
incremental shares included in the denominator is determined
by using a weighted average of the number of incremental
shares included in each quarterly calculation of diluted
EPS.
|
The number of incremental shares is
determined independently for each period presented. The
number of dilutive potential ordinary shares in the
year-to-date period is not a weighted average of the
dilutive potential ordinary shares included in each interim
calculation.
|
Denominator for diluted EPS: contingently
issuable shares
|
Shares whose issuance is contingent on the satisfaction of
certain conditions are included in the denominator for
diluted EPS if all necessary conditions have been met by the
end of the reporting period.
For year-to-date calculations, the number of
contingent shares included in the denominator of diluted EPS
is determined by weighting the interim periods.
|
Contingently issuable ordinary shares are included in the
denominator for diluted EPS if the conditions are met (i.e.,
have occurred).
Weighting interim periods in the
year-to-date calculation is not permitted. See “Denominator
for diluted EPS: treasury stock method — year-to-date
calculation” above.
|
Denominator for diluted EPS: contingently convertible
instruments
|
Shares issuable upon the conversion of a convertible
instrument that contains a market price trigger are included
in the calculation of diluted EPS regardless of whether the
market price trigger has been met as of the reporting date.
If a convertible instrument becomes convertible only if a
substantive non-market-based contingency is met, the shares
are included in the calculation of diluted EPS only if the
non-market-based contingency has been met as of the
reporting date.
|
Shares issuable upon the conversion of a contingently
convertible instrument are included in the calculation of
diluted EPS if the contingency has been met as of the
reporting date. The nature of the contingency that must be
met for conversion to occur is not relevant.
|
Denominator for diluted EPS: contracts that
may be settled in cash or shares
|
Inclusion of the shares in diluted EPS is
based on a presumption that the contract will be settled in
shares (if dilutive). The presumption of share settlement
may not be overcome except in the case of certain
share-based payment arrangements. Therefore, for contracts
that may be settled in cash or shares, if dilutive, share
settlement must be used in the calculation of diluted EPS,
regardless of whether the issuer or the holder has the right
to elect cash or shares.
When shares are included in the denominator
of diluted EPS and the contract is classified as an asset or
liability, an adjustment to the numerator may be required
for any changes in income or loss that would result if the
contract had been reported as an equity instrument.
|
For contracts that may be settled in cash or
ordinary shares, diluted EPS must be based on a presumption
that the contract will be settled in ordinary shares. The
presumption of share settlement may not be overcome.
Therefore, for contracts that may be settled in cash or
ordinary shares, if dilutive, share settlement must be used
in the calculation of diluted EPS, regardless of whether the
issuer or holder has the right to elect cash or shares.
When shares are included in the denominator
of diluted EPS and the contract either is classified as an
asset or liability, or has both an equity and a liability
component, the numerator must be adjusted for any changes in
profit or loss that would have resulted during the period if
the contract had been classified wholly as an equity
instrument.
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Footnotes
1
The differences are based on a comparison of the
authoritative literature under U.S. GAAP and IFRS Accounting Standards and
do not necessarily include interpretations of such literature.