Wiley IFRS: Practical Implementation Guide and Workbook, 3rd Edition

Chapter 25

EARNINGS PER SHARE (IAS 33)

BACKGROUND AND INTRODUCTION

Earnings per share (EPS) is simply a profit figure divided by a number of shares. The Standard concentrates on determining the number of shares to be used in the computation and gives limited guidance on the computation of the profit figure. The consistent use of the price/earnings ratio (P/E) by users of financial statements as an indicator of corporate performance led to the need for a Standard on earnings per share, which is a key component of the P/E ratio.

However, any inconsistency of accounting policies between entities will result in a lack of comparability of the earnings per share figure. IAS 33 enhances financial reporting by ensuring that there is at least consistency in the calculation of the denominator in the earnings per share statistic.

IAS 33 applies to

• Entities whose ordinary shares or potential ordinary shares are publicly traded or that are in the process of issuing shares in the public markets

• Entities that voluntarily choose to disclose

When both parent and group information are presented together, only the earnings per share for the group are required to be disclosed. If the parent discloses earnings per share information in its separate accounts, then this information should not be disclosed in the consolidated financial statements.

DEFINITIONS OF KEY TERMS

(in accordance with IAS 33)

 

Ordinary share. An equity instrument that is subordinate to all other classes of equity instrument. ...