9.1 Presentation
9.1.1 Required EPS Presentation on Face of Income Statement
ASC 260-10
Required EPS Presentation on the Face of the Income Statement
45-2 Entities with simple
capital structures, that is, those with only common
stock outstanding, shall present basic per-share amounts
for income from continuing operations and for net income
on the face of the income statement. All other entities
shall present basic and diluted per-share amounts for
income from continuing operations and for net income on
the face of the income statement with equal
prominence.
45-3 An entity that reports a discontinued operation in a period shall present basic and diluted per-share amounts for that line item either on the face of the income statement or in the notes to the financial statements.
45-4 The terms basic
EPS and diluted EPS are used to identify
EPS data to be presented and are not required to be
captions used in the income statement. There are no
explicit requirements for the terms to be used in the
presentation of basic and diluted EPS; terms such as
earnings per common share and earnings per
common share — assuming
dilution, respectively, are appropriate.
45-7 EPS data shall be presented for all periods for which an income statement or summary of earnings is presented. If diluted EPS data are reported for at least one period, they shall be reported for all periods presented, even if they are the same amounts as basic EPS. If basic and diluted EPS are the same amount, dual presentation can be accomplished in one line on the income statement.
ASC 270-10
Disclosure of Summarized Interim Financial Data by Publicly Traded Companies
50-1 Many publicly traded
companies report summarized financial information at
periodic interim dates in considerably less detail than
that provided in annual financial statements. While this
information provides more timely information than would
result if complete financial statements were issued at
the end of each interim period, the timeliness of
presentation may be partially offset by a reduction in
detail in the information provided. As a result, certain
guides as to minimum disclosure are desirable. (It
should be recognized that the minimum disclosures of
summarized interim financial data required of publicly
traded companies do not constitute a fair presentation
of financial position and results of operations in
conformity with generally accepted accounting principles
[GAAP].) If publicly traded companies report summarized
financial information at interim dates (including
reports on fourth quarters), the following data should
be reported, as a minimum: . . .
b. Basic and diluted earnings per share data
for each period presented, determined in
accordance with the provisions of Topic 260 . . .
.
ASC 260 requires an entity to present basic and diluted EPS (1) “with equal prominence” on the face of the income statement and (2) for each income statement period presented. Under ASC 270-10, the same requirement applies to interim periods.
The concept of materiality does not apply to the requirement to present both basic and diluted EPS on the face of the income statement. As noted in the Background Information and Basis for Conclusions of Statement 128, the FASB
considered that entities generally have to calculate diluted EPS to determine
that the basic and diluted EPS amounts are the same and that “requiring a dual
presentation at all times by all entities with complex capital structures places
all of the facts in the hands of users of financial statements at minimal or no
cost to preparers and gives users an understanding of the extent and trend of
potential dilution.”
An entity that reports a discontinued operation must present basic and diluted
EPS on the face of the income statement for income (loss) from continuing
operations and net income (loss) (or net income [loss] attributable to the
parent for an entity that has an NCI). Otherwise, an entity would only present
basic and diluted EPS for net income (loss) (or net income [loss] attributable
to the parent for an entity that has an NCI). See Sections 9.1.5 and 9.2.2.1 for further
discussion of the EPS presentation and disclosure requirements for discontinued
operations.
SEC Considerations
SEC Regulation S-X outlines the format and content required in financial reports filed with the SEC, including the presentation of EPS in annual reports and interim reports filed under the Exchange Act.
9.1.2 Multiple Classes of Common Stock
ASC 260-10-45-60B(d) requires presentation of basic and diluted EPS for each class of common stock. Therefore, an entity with multiple classes of common stock must present basic and diluted EPS for each class on the face of the income statement.
SEC Considerations
In numerous comment letters, the staff in the SEC’s Division of Corporation
Finance has indicated that an entity with multiple classes of common
stock that have the same amounts of basic and diluted EPS should either
(1) present basic and diluted EPS separately for each class of common
stock on the face of the income statement or (2) clearly state on the
face of the income statement that the amounts of basic and diluted EPS
are the same for each class of common stock.
9.1.3 “Tracking” or “Targeted” Stock
Some entities issue certain classes of stock characterized as “tracking” or
“targeted” stock to measure the performance of one of their business units,
activities, or assets. Under ASC 260-10-45-60B, such entities should use the
two-class method to determine EPS for each class of common stock. See the
previous section for further discussion of presentation considerations related
to multiple classes of common stock.
SEC Considerations
The SEC staff discourages an entity that has issued targeted stock from presenting complete financial statements of the business operations that pertain to the targeted stock, because investors may inaccurately conclude that their investment in such stock represents a direct investment in a legal entity. Rather, condensed financial statements that allow investors to fully understand the computation of earnings available for dividends are preferable to complete statements. A business that has issued targeted stock is also required to provide clear, cautionary disclosures.
Further, the SEC staff has indicated that EPS should not be shown in separate
financial statements of a business unit represented by the tracking
stock because the business unit did not issue the security. Rather, EPS
should only be presented and disclosed in the legal issuer’s
consolidated financial statements or along with its consolidated
information.
9.1.4 Participating Securities
ASC 260 does not require the presentation or disclosure of basic or diluted EPS for securities other than common stock. However, it also does not preclude the presentation of basic and diluted EPS for a participating security other than common stock. See Section 9.2.2.4 for further discussion of the required disclosures for participating securities and Section 9.2.3.3 for more information about the voluntary disclosure of EPS amounts for participating securities.
9.1.5 Discontinued Operations
ASC 205-20 addresses the accounting and presentation considerations related to
discontinued operations. As noted in ASC 260-10-45-3, an entity that reports a
discontinued operation must either present amounts of basic and diluted EPS for
discontinued operations on the face of the income statement or disclose these
amounts in the notes to the financial statements. This requirement is in
addition to the requirement to present basic and diluted EPS for income (loss)
from continuing operations and net income (loss) on the face of the income
statement. See Sections
8.6.3.2.1 and 8.7 for further discussion of the presentation of EPS by an
entity that reports a discontinued operation.
9.1.6 Income or Loss Applicable to Common Stock
SEC Staff Accounting Bulletins
SAB Topic 6.B,
Accounting Series Release 280 — General Revision of
Regulation S-X: Income or Loss Applicable to Common
Stock [Reproduced in ASC 220-10-S99-5]
Facts: A
registrant has various classes of preferred stock.
Dividends on those preferred stocks and accretions of
their carrying amounts cause income applicable to common
stock to be less than reported net income.
Question: In ASR
280, the Commission stated that although it had
determined not to mandate presentation of income or loss
applicable to common stock in all cases, it believes
that disclosure of that amount is of value in certain
situations. In what situations should the amount be
reported, where should it be reported, and how should it
be computed?
Interpretive
Response: Income or loss applicable to common
stock should be reported on the face of the income
statement1 when it is materially
different in quantitative terms from reported net income
or loss2 or when it is indicative of
significant trends or other qualitative considerations.
The amount to be reported should be computed for each
period as net income or loss less: (a) dividends on
preferred stock, including undeclared or unpaid
dividends if cumulative; and (b) periodic increases in
the carrying amounts of instruments reported as
redeemable preferred stock (as discussed in Topic 3.C)
or increasing rate preferred stock (as discussed in
Topic 5.Q).
____________________
1 When a registrant reports
net income and total comprehensive income in one
continuous financial statement, the registrant must
continue to follow the guidance set forth in the SAB
Topic. One approach may be to provide a separate
reconciliation of net income to income available to
common stock below comprehensive income reported on a
statement of income and comprehensive income.
2 The assessment of
materiality is the responsibility of each registrant.
However, absent concerns about trends or other
qualitative considerations, the staff generally will not
insist on the reporting of income or loss applicable to
common stock if the amount differs from net income or
loss by less than ten percent.
SAB Topic 6.B requires SEC registrants to present “income or loss applicable to common stock” on the face of the income statement when the amount materially differs from net income or loss. However, the Codification does not define or otherwise refer to income or loss applicable to common stock. Rather, ASC 260 uses the defined term “income available to common stockholders” (emphasis added) and ASC 260 and ASC 810 refer to net income or loss “attributable to the parent” (although this latter term is not defined).
Since income available to common stockholders is the numerator in an entity’s
computation of EPS under ASC 260, the phrase “income or loss applicable to
common stock,” as referred to in SAB Topic 6.B. can be interpreted as the
equivalent of “income available to common stockholders.” That is, “income or
loss applicable to common stock” would be calculated as consolidated net income
or loss (or consolidated net income or loss attributable to the parent for
entities with an NCI) less preferred stock dividends and any other deductions
required by ASC 260 (see Chapter 3). An entity would compare this amount with
consolidated net income or loss (or consolidated net income or loss attributable
to the parent for entities with an NCI) to determine whether the difference is
material and would therefore need to be disclosed on the face of the income
statement.
When the difference between the aforementioned amounts is material (i.e., generally 10 percent or more, as indicated in footnote 2 of SAB Topic 6.B), an entity must present the numerator amount used in its EPS calculation on the face of the income statement; otherwise, the entity can only disclose this amount in the notes to the financial statements in accordance with ASC 260-10-50-1(a) (see Section 9.2.1). When the amount must be presented on the face of the income statement, an entity may use various terminology to present it (e.g., “income or loss applicable to common stock,” as referred to in SAB Topic 6.B, or “income available to common stockholders [of the parent],” as referred to in ASC 260).
SEC Considerations
SAB Topic 6.B does not address how entities with discontinued operations should
calculate “income or loss applicable to common stock.” However, because
ASC 260 requires presentation of basic and diluted EPS on the face of
the income statement for both income (loss) from continuing operations
and net income (loss), entities that present discontinued operations
should perform the calculations for income (loss) from continuing
operations available to common stockholders separately from those for
income (loss) available to common stockholders. If the difference in the
calculation (or calculations) constitutes a material difference as
described in SAB Topic 6.B, it should be presented on the face of the
income statement; otherwise, the amount(s) may only be disclosed.