International Financial Reporting Standards_guide.pdf

CHAPTER 32
Earnings per Share
(IAS 33)
32.1 OBJECTIVE
Earnings per share is a prime variable used for evaluating the performance of an entity. It
allows investors to make an accurate comparison of the results of entities functioning in different
sectors and industries.
The objective of IAS 33 is to prescribe principles for the determination and presentation of
earnings per share, focusing on the denominator (number of shares) of the calculation
because a consistently determined denominator results in enhanced performance reporting.
This improves the performance comparisons between different entities and different reporting
periods of the same entity. The standard distinguishes between the notions, calculation
methods, and disclosures of basic as well as diluted earnings per share.
32.2 SCOPE OF THE STANDARD
This standard applies to entities whose shares are publicly traded (or in the process of being
issued in public securities markets) and other entities that choose to disclose earnings per
share. It is applicable to consolidated information only if the parent prepares consolidated
financial statements. Where an entity prepares both separate and consolidated financials, this
information need only be presented in the consolidated financials.
32.3 KEY CONCEPTS
32.3.1 Earnings per share is the interest of each ordinary share of an entity in the profit or
loss of the entity for the reporting period.
32.3.2 Earnings are the amounts attributable to all the ordinary equity holders of the parent
entity (controlling and non-controlling interest).
32.3.3 An ordinary share is an equity instrument that is subordinate to all other classes of
equity instruments. An entity may issue more than one class of ordinary shares.
32.3.4 A potential ordinary share is a financial instrument or other contract that can entitle
its holder to ordinary shares of an entity (for example, debt or equity instruments that are
convertible into ordinary shares, and share warrants and options that give the holder the
right to purchase ordinary shares).
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