Proposed Revisions to Earnings Per Share Computations

As part of its promised efforts to converge US GAAP with the corresponding standards issued by IASB, FASB issued a draft of amendments to FAS 128 in late 2003. It subsequently exposed a revised set of amendments in 2005, and this remains outstanding as of mid‐2007. Because FASB and IASB have reached different conclusions on how certain instruments would be treated for EPS computation purposes, it is unclear how this project will proceed and FASB no longer has a projected issuance date for a final standard on its technical agenda, although this continues as an active project.

Notwithstanding this uncertainty, in the possibility that the outstanding draft is finalized, the following paragraphs will summarize it as it exists as of mid‐2007. Readers should be alert to further developments, however.

The 2005 draft did not alter any of the proposed changes to FAS 128 that had been set forth in the original (2003) Exposure Draft, but did add several further proposed revisions to EPS calculation requirements. The original proposal included the following:

  1. An amendment to the computational guidance in FAS 128 pertaining to calculating the number of incremental shares included in diluted shares when applying the treasury stock method.

  2. The elimination of the provision of FAS 128 that allows an entity to rebut the presumption that contracts that may be settled in either cash or shares will be settled in shares.

  3. A requirement that shares that ...

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