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15.12 Basic EPS calculation
Publication date: 28 Feb 2022
us IFRS & US GAAP guide
The calculation of basic earnings-per-share (EPS) may be different under US GAAP compared with IFRS due to differences in the calculation methodology related to mandatorily convertible instruments and participating securities.
15.12.1 Mandatorily convertible instruments
Differences in the treatment of shares issuable on conversion of a mandatorily convertible instrument could result in a different denominator for basic EPS.
US GAAP |
IFRS |
Current practice is not to include shares issuable pursuant to conversion of a mandatorily convertible instrument in the computation of basic EPS, unless the instrument is determined to be a participating security (in which case it would be included in the calculation of the basic EPS numerator).
Such shares should be included in the computation of diluted EPS using the if-converted method.
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Ordinary shares that are issuable on the conversion of a mandatorily convertible instrument should be included in basic EPS from the date the contract is entered into, since the issuance of ordinary shares for such instrument is solely dependent on the passage of time.
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15.12.2 Participating securities and the two-class method
The scope of instruments to which the two-class method applies is wider under US GAAP. In addition, under US GAAP, losses are allocated to participating instruments only if certain conditions are met.
US GAAP |
IFRS |
The two-class method is applied to all instruments that participate in dividends with common stock according to a predetermined formula. It applies regardless of whether the instrument is convertible or non-convertible. It also applies to both instruments classified as liabilities and those classified as equity.
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The two-class method applies to equity instruments that participate in dividends with ordinary shares according to a predetermined formula; it does not apply to participating instruments classified as liabilities. Also, the two-class method is only explicitly required to be applied to participating equity instruments that are not convertible to ordinary shares.
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A reporting entity should only allocate losses to participating securities if, based on the contractual terms of the participating securities, the securities have a contractual obligation to share in the losses of the reporting entity on a basis that is objectively determinable.
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No explicit guidance limits allocation of losses to participating securities.
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