FRC publishes review of earnings per share
News types: Codes and Standards Announcements, Corporate Reports, Generic Announcement, Guidance, Policies and Responsibilities, Publications, Statements
Published: 8 September 2022
The Financial Reporting Council (FRC) has today published its thematic review of earnings per share (EPS).
All companies with listed ordinary shares are required to report EPS in accordance with IAS 33 ‘Earnings per share’ in their interim and annual reports (including companies reporting under the UK GAAP standard FRS 102). EPS is a well understood metric, which is widely used by companies and investors, however, some aspects of its calculation are not straightforward. The findings from the FRC’s Corporate Reporting Review (CRR) team’s routine monitoring of company reporting show that some of the main principles of IAS 33 are not always well understood or applied correctly.
The FRC’s review identifies how companies can improve their disclosure of EPS:
All companies with listed ordinary shares are required to report EPS in accordance with IAS 33 ‘Earnings per share’ in their interim and annual reports (including companies reporting under the UK GAAP standard FRS 102). EPS is a well understood metric, which is widely used by companies and investors, however, some aspects of its calculation are not straightforward. The findings from the FRC’s Corporate Reporting Review (CRR) team’s routine monitoring of company reporting show that some of the main principles of IAS 33 are not always well understood or applied correctly.
The FRC’s review identifies how companies can improve their disclosure of EPS:
- Companies should consider providing further information to explain the basis for the weighted average number of shares used in the calculation of EPS, if it is significantly different from information disclosed about issued ordinary shares and potential ordinary shares (for example, share options).
- Judgements that have a material effect on EPS should be disclosed in accordance with paragraph 122 of IAS 1 (or paragraph 8.6 of FRS 102).
- Disclosures provided for non-GAAP ‘adjusted EPS’ should meet the requirements of the ESMA Guidelines on Alternative Performance Measures (APMs) and explain the methodology applied in the adjusted calculation, including the basis used for tax on adjusting items.
To encourage improvement in the general quality of the application of IAS 33 by companies, the review includes a summary of the main requirements of the standard; examples to explain some more complex aspects of calculating EPS; and observations on the importance of EPS for investors.
The full review is available here .