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Earnings per share: improvement needed

Author: ICAEW Insights

Published: 29 Sep 2022

While acknowledging that applying IAS 33 is not always straightforward, especially when complex arrangements are involved, the FRC highlights aspects of the standard that are more frequently applied incorrectly, and/or tend to cause confusion.

The FRC has released a report on its thematic review on IAS 33 Earnings per Share (EPS), which when applicable, applies to both IFRS and UK GAAP reporters. They note that certain requirements of IAS 33 appear to have been overlooked and/or are not well understood by companies. On several occasions, queries raised by the FRC’s Corporate Reporting Review team have resulted in a restatement of the company’s reported EPS in the following year.

Using case studies and examples, the report aims to highlight and explain the issues involved and show how companies can improve the reliability of their EPS by complying with the detailed requirements of IAS 33 as well as providing more helpful disclosures. 

Earnings (numerator)

The numerator reflects the profit or loss attributable to ordinary equity holders of the parent company. Therefore, when preference shares are classified as equity, earnings used for EPS need to be adjusted for all the effects of those preference shares including dividends and any premiums arising on redemption.

Weighted average number of ordinary shares outstanding (denominator)

The denominator is key to the calculation of EPS, but IAS 33 does not require specific disclosures to explain how the number has been determined. Therefore, the FRC recommends that companies provide further information to explain the basis for the weighted average number of shares if it is significantly different from information disclosed about issued ordinary shares and potential ordinary shares. 

When there are share reorganisations (eg, bonus issue, share split, stock dividends) the denominator should be adjusted retrospectively for all periods presented for any change in the number of ordinary shares outstanding without a corresponding change in resources. 

Companies are reminded that there are circumstances when the denominator for the period may include shares that have not been issued yet. Examples of this include when shares are issuable subject to contingent conditions that have already been met and shares whose issue is subject only to the passage of time.

Definitions of dilutive and antidilutive

The calculation of diluted EPS reflects the effects of dilutive potential ordinary shares. The IAS 33 definition of whether potential ordinary shares are dilutive or antidilutive is based on the profit or loss from continuing operations.


Where judgements are made that have a material effect on EPS, such as the assessment of the substance of a share reorganisation, meaningful details should be disclosed.

Adjusted-EPS disclosures should meet requirements of the ESMA Guidelines on Alternative Performance Measures (APMs).

A greater awareness of and compliance with IAS 33, combined with the disclosure enhancements recommended in the thematic, will help companies present investor-relevant, reliable EPS information in their annual and interim reports. 

“EPS is an important metric used by investors in their decision-making and drives to ensure it is calculated correctly and consistently are welcome. As we look ahead to the upcoming reporting season, this thematic review will be a useful reference tool for preparers.” says Sally Baker, Head of Corporate Reporting Policy in ICAEW’s Financial Reporting Faculty.

  • The Financial Reporting Faculty has a range of resources on IFRS requirements available at icaew.com/frfifrs and UK GAAP at icaew.com/ukgaap
  • Information specifically relating to IAS 33 can be found on the faculty’s standard tracker page icaew.com/ias33

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