Published on December 10, 2009
Earnings Per Share : Earnings Per Share By: Lisa Ramirez-Carter Slide 2: Revised Statement of Financial Accounting Standard 128, Earnings Per Share STEP ONE – Identify the Issue Our client does not have the manpower to look into the situation, so they’ve asked us for help in the matter. A client of our firm would like to know how a recent exposure draft will affect their business: STEP ONE – Continued : STEP ONE – Continued Proposed statement is part of joint project to do away with differences between Statement 128 and IAS 33. Revision to make earnings per share (EPS) computation more simple. Denominator used in EPS calculation will be the same for FASB and IAS statements. STEP TWO – Specify the Objective : STEP TWO – Specify the Objective Figure out how the recent exposure draft will affect our client. Slide 5: STEP THREE – Key Words FASB Recent Developments Exposure Draft FASB Statement No. 128 Earnings Per Share Slide 6: Statement 128 applies to firms with publicly held stock or common shares. Parts of the revised statement about accounting for share-based payments are most important. Requires this type of company to present “basic” and “diluted” EPS on income statement. STEP FOUR – Identify Changes That May Effect Client Slide 7: STEP FIVE – How Will Changes Effect Client Share-based payments classified as liability awards cannot be included in the “basic” or “diluted” EPS equation. Treasury stock method includes the end-of-period “carrying value” of certain liabilities as assumed proceeds. Companies must assume share settlement in diluted EPS calculation for share-based payments. Treasury stock method would assume end-of-period conversion and end-of-period stock price to calculate incremental shares. Slide 8: STEP SIX –Collect Evidence BNA Tax & Accounting 6-27-08: FASB’s project on earnings per share is part of its short-term convergence effort with the IASB to eliminate differences in the two boards standards. No effective date for revisions has been set. Frederic W. Cook & Co., Inc. 9-15-08: A recent FASB exposure draft could favorably effect EPS for share-based payments considered “liability awards.” FASB Proposed Statement of Financial Accounting Standards – Earnings Per Share 8-7-08: FASB and IASB wants to eliminate differences in the two boards calculations of EPS to clarify the calculation and improve comparability. Slide 9: This revision amends FASB Statement No. 128, Earnings Per Share, to clarify and simplify the computation of earnings per share (EPS). STEP SEVEN – Summarize Pertinent Literature The denominator used to compute EPS under revised Statement 128 would be the same as the denominator used to compute EPS under IAS 33. This would improve the comparability of EPS on an international level. Slide 10: STEP EIGHT – Choose Course of Action After reviewing the situation, the course of action recommended to the client is to hire an outside consulting firm when changes to Statement 128 become enforced. The fact that our client does not have the manpower to undertake such a task internally had a major influence on our recommendations. Slide 11: STEP NINE – Implementation Conduct interviews with various consulting firms that have been recommended. Choose top two or three firms and request an official project proposal be sent for review. Select a firm to implement the necessary changes. STEP TEN – Communicate Conclusions : STEP TEN – Communicate Conclusions Client will be effected by proposed revisions of FASB Statement 128 that apply to share-based payments. Firm will need to hire a professional consulting firm to implement changes once revisions become effective. Slide 13: STEP ELEVEN – File Research All files collected during our research will be filed for future reference. Copies of our analysis and summaries of literature will be provided to client. Slide 14: HOW WAS RESEARCH CONDUCTED? Evidence for this case was collected from online searches, from the FASB, and from UHV databases searches.