IAS 33 Earnings per Share - Summary

IAS 33 Earnings per Share

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IFRS Summaries by Imad Uddin, FRM

Objective

Prescribe principles for the determination and presentation of earnings per share (EPS).
Aims to improve performance comparisons between different entities in the same period and between different periods for the same entity.
Focuses on the denominator of the EPS calculation (number of shares) and requires consistent determination.

Scope

Applies to entities whose ordinary shares or potential ordinary shares are publicly traded (or are in the process of issuing such shares in public markets).
Applies to both individual/separate financial statements and consolidated financial statements of a group.
Entities not publicly traded but choosing to disclose EPS must also comply fully with IAS 33.

Key Definitions

Term Meaning
Ordinary Share An equity instrument that is subordinate to all other classes of equity instruments (i.e., ranks last for dividends and on liquidation).
Potential Ordinary Share A financial instrument or other contract that may entitle its holder to ordinary shares. Examples: convertible debt, convertible preference shares, share options, warrants.
Basic EPS Profit or loss attributable to ordinary equity holders of the parent entity divided by the weighted average number of ordinary shares outstanding during the period.
Diluted EPS Basic EPS adjusted for the effects of all dilutive potential ordinary shares. It shows the 'worst-case' EPS if all dilutive instruments were converted.
Dilution A reduction in earnings per share (or increase in loss per share) resulting from the assumption that convertible instruments are converted, options/warrants are exercised, or ordinary shares are issued upon satisfaction of specified conditions.
Antidilution An increase in earnings per share (or decrease in loss per share) resulting from the assumption that potential ordinary shares are converted/exercised/issued. Antidilutive effects are ignored in calculating Diluted EPS.

Calculation of Basic EPS

Formula:

Basic EPS = Numerator / Denominator
(Profit/Loss attributable to Ordinary Holders) / (Weighted Avg. Ordinary Shares Outstanding)

Key Considerations:

Numerator (Earnings): Start with Profit or Loss attributable to the parent entity. Adjust for after-tax effects of preference dividends (if preference shares classified as equity), differences arising on settlement, and other similar effects of preference shares classified as equity.
Denominator (Shares): Use the Weighted Average Number of Ordinary Shares Outstanding (WANOSO) during the period.
Shares are usually included from the date consideration is receivable (typically date of issue).
WANOSO is adjusted retrospectively for events that change the number of shares without changing resources (e.g., bonus issues, share splits, reverse splits, rights issues element of bonus).
Contingently issuable shares are included only from the date all necessary conditions are satisfied.
Treasury shares are excluded from the calculation.

Calculation of Diluted EPS

Formula:

Diluted EPS = Adjusted Numerator / Adjusted Denominator
(Adjusted P/L attrib. to Ord. Holders) / (WANOSO + Weighted Avg. Dilutive Potential Ord. Shares)

Diluted EPS considers the impact ('what if' scenario) of all potential ordinary shares that would decrease EPS (or increase loss per share) if converted/exercised.

Adjustments to Numerator (Profit or Loss):

Add back the after-tax interest expense recognized in the period for dilutive convertible debt.
Add back the after-tax preference dividends recognized for dilutive convertible preference shares.
Adjust for any other consequential changes in income or expense resulting from the assumed conversion (e.g., changes in bonus calculations based on profit).

Adjustments to Denominator (Shares):

Add the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares.
Potential shares are assumed converted at the beginning of the period or the date of issue, if later.
For options/warrants, calculate shares issued using the treasury stock method (assume proceeds used to buy back shares at average market price; only the excess shares issued are dilutive).
Exclude anti-dilutive potential ordinary shares (see below).

Antidilution

Antidilution occurs when the inclusion of potential ordinary shares in the calculation would increase earnings per share or decrease loss per share from continuing operations.
Potential ordinary shares are antidilutive and therefore excluded from the diluted EPS calculation if their conversion would increase EPS / decrease loss per share.
Each issue or series of potential ordinary shares is considered separately to determine if it's dilutive or antidilutive. They are considered in sequence from most dilutive to least dilutive.

Presentation Requirements

Entities within scope must present Basic EPS and Diluted EPS on the face of the statement of comprehensive income (or separate income statement, if presented).
Present EPS for:
Profit or loss from continuing operations attributable to ordinary equity holders.
Profit or loss from discontinued operations attributable to ordinary equity holders (can be in notes).
Profit or loss attributable to ordinary equity holders (total).
Present Basic and Diluted EPS with equal prominence for all periods presented.
If EPS is restated due to bonus issue, split, etc., this fact must be disclosed.

Disclosures Required

Disclosure Requirement Explanation / Detail
Numerators Used The amounts used as the numerators in calculating basic and diluted EPS, and a reconciliation of these amounts to the entity's profit or loss for the period. Reconciliation includes individual effect of each class of instrument affecting EPS.
Denominators Used The weighted average number of ordinary shares used as the denominator for basic and diluted EPS, and a reconciliation between these denominators.
Potentially Dilutive Instruments Description of ordinary shares issuable for little or no cash consideration upon satisfaction of conditions (contingently issuable shares) if not included in diluted EPS calculation because conditions not met.
Anti-Dilutive Instruments Instruments (including contingently issuable shares) that could potentially dilute basic EPS in the future but were not included in the diluted EPS calculation because they are antidilutive for the period(s) presented.
Transactions After Reporting Period Description of ordinary share transactions or potential ordinary share transactions (other than those adjusted retrospectively like splits/bonus issues) that occur after the reporting period and would have significantly changed the number of shares outstanding if they had occurred before period end. (e.g., major share issue, conversion of debt).

Summary Table: Basic vs. Diluted EPS

Aspect Basic EPS Diluted EPS
Profit or Loss (Numerator) Attributable to ordinary equity holders (after preference dividends etc.) Adjusted for after-tax effects of conversion/exercise of dilutive potential ordinary shares (e.g., add back interest).
Shares (Denominator) Weighted average number of ordinary shares outstanding. WANOSO + Weighted average number of additional shares from assumed conversion/exercise of dilutive potential ordinary shares.
Inclusion of Potential Shares No Yes (Only if Dilutive)
Presentation Required on face of Income Statement. Required on face of Income Statement.

Key Judgments and Estimates

Determining whether potential ordinary shares are dilutive or anti-dilutive for each period presented.
Assessing the timing and likelihood of conversion or exercise for potential ordinary shares, especially contingently issuable shares.
Accurately calculating the weighted average number of shares outstanding, considering issues, repurchases, splits, bonus issues etc.
Calculating the necessary adjustments to profit or loss for the assumed conversion of dilutive instruments (e.g., after-tax interest).
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Imad Uddin is deeply passionate about IFRS and has founded Analyqt, a consulting firm dedicated to helping clients navigate complex accounting and financial reporting challenges. In addition to his advisory work, Imad is committed to education and knowledge-sharing, which led to the creation of IFRSMasterclass.com, a platform offering high-quality IFRS training and resources.

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