Earnings Per Share, written by Ruth Ann McEwen, Ph.D., CPA, Associate Dean at Suffolk University, Sawyer School of Business, discusses the calculation, presentation, and disclosure requirements of Earnings Per Share under U.S. GAAP.  

Concentrating on external financial reporting, this Portfolio focuses on performance as it is measured by Earnings Per Share (EPS).  It begins by providing historical background and identifying the authoritative basis for measuring and disclosing EPS.  This Portfolio then discusses the conceptual framework of U.S. GAAP reporting and the assumption underlying the GAAP. 

From there, this Portfolio closely examines the statement of earnings and comprehensive income.  Topics addressed include categories of EPS, variations in nature and extent of disclosing EPS, sources of authoritative guidance, and fully diluted EPS.  Single and multi-formats of the income statement are also addressed. 

Earnings Per Share walks practitioners through the calculation of EPS, beginning with the determination of the weighted average shares outstanding and basic EPS and concluding with the consideration of complex capital structures and required disclosures.  This Portfolio identifies the requirements of interim financial reporting and its effects on EPS, and it examines alternate EPS definitions. 

Finally, this Portfolio discusses the international aspects of Earnings Per Share as they relate to IAS 33 and international convergence efforts, and it explores earnings quality and topics in earnings management. 

Earnings Per Share allows you to benefit from: 

• Hundreds of hours of original research on specific tax planning topics from leading practitioners in this area.
• Invaluable practice documents including tables, charts and lists.
• Guidance from world-class experts.
• Real-world and in-depth analysis that lets you explore various options.
• Time-saving access to relevant sections of tax laws, regulations, court cases, IRS documents and more.
• Alternative approaches to both common and unique tax scenarios.

This Portfolio is included in the Accounting Policy & Practice Series, a comprehensive series of titles which explain, explicate, and offer commentary on a wide range of accounting and financial management topics, including revenue recognition, income taxes, leasing, business combinations, debt instruments, risk management, internal controls and more. 

Detailed Analysis

I. Historical Background and Objectives of the Portfolio

Introductory Material

A. Historical Background

1. Philosophical Debate

2. Initial Guidance

3. FASB Guidance

B. Objectives

II. Basis for Earnings Measurement

Introductory Material

A. Authoritative Basis for Earnings Per Share Disclosure

B. Objectives of Financial Reporting: The Decision Usefulness of Earnings

1. The Conceptual Framework of U.S. GAAP Reporting

2. Assumptions Underlying U.S. GAAP

III. The Statement of Earnings and Comprehensive Income

A. Comprehensive Income and Earnings Items

B. Earnings Per Share: Overview

1. Scope of Requirement

2. Categories of EPS

3. Variations in Nature and Extent of Disclosing EPS

4. Sources of Authoritative Guidance

5. Basic Earnings Per Share

6. Fully Diluted Earnings Per Share

7. Cross Reference

C. The Income Statement: Single and Multi-Step Formats

1. Perspective

2. Multi-Step Statements

3. Continuing Operations

4. Discontinued Operations

5. Extraordinary Items

IV. Calculation of Earnings Per Share (EPS)

Introductory Material

A. Weighted Average Shares Outstanding and Basic Earnings Per Share

B. Complex Capital Structure and Diluted Earnings Per Share

1. Potentially Dilutive Securities and Their Effect on Earnings Per Share

a. Potentially Dilutive Options, Warrants and Their Equivalents

i. Employee Options (Share-Based Payments)

ii. Warrants

b. Treasury-Stock Method: Treatment of Options and Warrants in Earnings Per Share Calculations

c. Potentially Dilutive Convertible Securities

i. Convertible Bonds

ii. Convertible Preferred Stock

d. The If-Converted Method: Treatment of Convertible Debt and Convertible Preferred Stock in Earnings Per Share Calculations

e. Anti-Dilution Sequencing

2. Annual and Quarterly Basic and Diluted EPS Calculations

a. Calculation of Annual Basic Earnings Per Share and Annual Diluted Earnings Per Share

b. Calculation of Quarterly Basic Earnings Per Share and Quarterly Diluted Earnings Per Share

C. Required Disclosures

D. Special Topics

1. Written Put Options

2. Accelerated Share Repurchase Programs

3. Contracts Settled in Stock or Cash

4. Contingently Issuable Securities

5. Contingently Convertible Securities

6. Stock Dividends and Stock Splits

7. Rights Issues

8. Prior Period Adjustments

9. Participating Securities and Two-Class Common Stock

10. Business Combinations

11. Securities of Subsidiaries

12. Partially Paid Stock Subscriptions

13. Employee Stock Ownership Plans

14. Financial Reporting by Entities in Reorganization Under the Bankruptcy Code

V. Interim Financial Reporting and its Effects on Earnings Per Share

Introductory Material

A. The Objective of Interim Reporting

B. Revenues and Expenses in Interim Reporting

C. Seasonality

D. Tax Provisions

E. Accounting Changes

F. Earnings and EPS

G. Required Disclosures for Interim Periods

VI. Alternate Earnings Per Share Definitions

Introductory Material

A. S& P Core Earnings

B. Pro Forma Earnings and the SEC's Regulation G

VII. International Aspects of Earnings Per Share: IAS 33 and International Convergence Efforts

A. Applicable Standards and Differences

B. Tentative Convergence Decisions

VIII. Earnings Quality and Topics in Earnings Management

Introductory Material

A. Motivations for Managed Earnings

1. Incentive Compensation

2. Draft Covenants

3. Income Reductions

4. Earnings Expectations

B. Broad Categories of Earnings Management Techniques

1. Big Bath Restructuring Charges

2. Creative Acquisition Accounting

a. Prior to FAS 141(R)

b. After FAS 141(R)

3. Miscellaneous "Cookie Jar" Reserves

4. Misuse of Materiality

5. Revenue Recognition

C. Other Earnings Management Techniques

1. Current Assets

a. Accounts Receivable

b. Notes Receivable

c. Inventory

2. Non-current Assets

a. Tangible Assets

b. Interest Capitalization

c. Depreciation

d. Basket Purchases

3. Asset Impairment

4. Investments in Securities

5. Equity Method of Accounting for Investments

6. Asset Retirement Obligations

7. Deferred Tax Assets

8. Intangible Assets

9. Current Liabilities

10. Loss Contingencies

11. Other Items

12. Off-Balance-Sheet Financing

13. Pension Obligations and Expenses

14. Derivatives

D. The Accounting Profession's and SEC's Responses to Earnings Management

Working Papers

TABLE OF WORKSHEETS

Worksheet 1 Glossary

Worksheet 2 Statement of Financial Accounting Standards No. 128, Earnings Per Share February 1997

Worksheet 3 Accounting Principles Board Opinion No. 28 (As Amended)

Worksheet 4 International Accounting Standard 33, Earnings Per Share

Worksheet 5 Sample Disclosures of Earnings Per Share by Public Companies

Worksheet 6 List of Significant Accounting Pronouncements Principally Discussed

Bibliography

OFFICIAL

Statutes

Cases

C.F.R.

American Institute of Certified Public Accountants:

Statements on Auditing Standards

Accounting Principles Board Opinions

AICPA Audit and Accounting Guides

Accounting Research Bulletins

AICPA Statements of Position

Emerging Issues Task Force:

EITF Issues

Financial Accounting Standards Board:

FASB Concepts Statements

FASB Interpretations

FASB Staff Positions

FASB Statement of Financial Accounting Standards

FASB Miscellaneous

International Accounting Standards Board:

International Accounting Standards

Securities and Exchange Commission:

SEC Staff Accounting Bulletins

SEC Miscellaneous

UNOFFICIAL

Miscellaneous