Register to get free articles
Want unlimited access? View Plans
Already have an account? Sign in
The Financial Reporting Council (FRC) has published its thematic review of earnings per share (EPS), which means that all companies with listed ordinary shares are required to report EPS in accordance with IAS 33 in their interim and annual reports.
This is said to include companies that are reporting under the UK GAAP standard FRS, and while it is a “well understood” metric, some aspects of its calculations are also not straightforward as the findings from the FRC’s Corporate Reporting Review (CRR) team show that some of the main principles of IAS 33 are not always well understood or applied correctly.
As a result, the FRC’s review identified how companies can improve their disclosure of EPS.
According to the council, companies should consider providing further information to explain the basis for the weighted average number of shares used in the calculation of EPS and whether it is significantly different from the information disclosed about issued ordinary shares and potential ordinary shares.
Judgements that have a material effect on EPS should also be disclosed in accordance with paragraph 122 of IAS 1, according to the FRC.
In addition, disclosures provided for non-GAAP ‘adjusted EPS’ should meet the requirements of the ESMA Guidelines on Alternative Performance Measures (APMs) and explain the methodology applied in the adjusted calculation, including the basis used for tax on adjusting items.
The review also highlights the more common errors found in EPS calculations, and reminds companies of certain key requirements including the definitions of dilutive and antidilutive, the treatment of share reorganisations that include a bonus element, adjustments required for equity preference shares, and the methodology for calculating EPS when a reverse acquisition has taken place.
It is reported that in order to encourage improvement in the general quality of the application of IAS 33 by companies, the review also includes a summary of the main requirements of the standard, as well as examples to explain some more complex aspects of calculating EPS and observations on the importance of EPS for investors.
