1.2 History of EPS Guidance

In 1969, the AICPA issued Opinion 15, the purpose of which was to ensure that EPS information was “computed on a consistent basis and presented in the most meaningful manner.” As discussed in Opinion 15, before entities were required to present EPS information, EPS data were commonly used “in evaluating the past operating performance of a business, in forming an opinion as to its earnings potential and in making investment decisions.” Further, such data were commonly presented in “prospectuses, proxy material, and reports to stockholders.”

After the AICPA issued numerous accounting interpretations related to the application of Opinion 15, domestic and international standard setters began to pursue the convergence of their accounting standards on EPS. The International Accounting Standards Committee (IASC) issued a statement of principles on EPS in 1993 to provide an appropriate framework under which EPS data of entities globally can be calculated.

In the years after the issuance of the IASC’s statement of principles on EPS, the FASB and IASC worked together to initiate a consistent international approach to the determination and subsequent presentation of EPS. Because the rules and regulations of foreign jurisdictions varied with respect to determining earnings, the diversity in international practice in this area was not the focus of the convergence efforts. Rather, the FASB and IASC believed that a consistently determined denominator would help significantly improve EPS comparability for entities globally. Thus, much of the standard setting at this time focused on developing a consistent framework for determining the denominator in the computation of EPS.

In 1997, the FASB and IASC concurrently issued Statement 128 and IAS 33, respectively; the guidance in these EPS standards was substantially converged. Since the issuance of Statement 128, the FASB’s Emerging Issues Task Force (EITF) has deliberated and reached consensus on a number of specific EPS topics. The guidance in Statement 128 and in these subsequent interpretations is codified in ASC 260. In addition, the FASB has issued several ASUs to amend the EPS guidance in ASC 260.

The FASB and International Accounting Standards Board (IASB®) have not fully converged their accounting guidance on the presentation and disclosure of EPS. See Appendix A for a table comparing the EPS guidance in U.S. GAAP with that in IFRS® Accounting Standards.

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