Short-Term International Convergence Projects
Remaining Project: Earnings per Share
Last Updated: May 6, 2009 (Updated sections are indicated with an asterisk *)
The staff has prepared this summary of Board decisions for information purposes only. Those Board decisions are tentative and do not change current accounting. Official positions of the FASB are determined only after extensive due process and deliberations.
*Due Process Documents
Decisions Reached at Last Meeting (Earnings per Share)
Summary of Decisions Reached to Date (Earnings per Share)
*Next Steps (Earnings per Share)
Board/Other Public Meetings
The overall objective of the short-term convergence effort is to improve financial reporting in the United States, while concurrently eliminating a variety of individual differences between U.S. generally accepted accounting principles (GAAP) and International Financial Accounting Standards (IFRS). These "short-term convergence" projects are limited to projects that address differences outside the scope of a major project and for which convergence around a high-quality solution appears to be achievable in the short term, usually by selecting between existing IFRS and U.S. GAAP.
In the current phase, the Board addressed five areas:
- Inventory costs (Statement 151)
- Asset Exchanges (Statement 153)
- Accounting Changes (Statement 154)
- Earnings per Share (in progress)
- Balance Sheet Classification (removed from agenda)
*Due Process Documents
- Inventory costs:
- Asset exchanges:
- Accounting Changes and Error Corrections:
- Earnings per Share:
The FASB issued Statement No. 151, Inventory Costs, in November 2004.
The FASB issued Statement No. 153, Exchanges of Nonmonetary Assets, in December 2004.
The FASB issued Statement No. 154, Accounting Changes and Error Corrections, in May 2005.
In 2003 and 2005, the FASB issued an Exposure Draft, Earnings per Share. As the result of its redeliberations of the Exposure Draft, the Board made additional changes to the requirements of Statement 128 and issued a revised Exposure Draft, Earnings per Share, on August 7, 2008 with a 120 day comment period. The comment period ended on December 5, 2008.
Exposure Draft (August 2008)
*Comment Letter Analysis (August 2008)
Exposure Draft (September 2005)
Comment Letters (September 2005)
Comment Letters (December 2003)
Comment Letter Analysis (December 2003)
Exposure Draft (January 2007)
On June 16, 2004, the Board decided to defer issuance of an Exposure Draft on balance sheet classification and remove the issue from the scope of the short-term convergence project. The tentative decisions reached in the project will be further considered in the Board’s project on financial statement presentation.
Decisions Reached at Last Meeting (Earnings per Share) (June 18, 2008)
See minutes below.
Summary of Decisions Reached to Date (Earnings per Share)
See Exposure Draft.
*Next Steps (Earnings per Share)
At its April 2009 IASB Meeting, the IASB, in light of other priorities, decided to pause the Earnings per Share project and resume discussions towards the end of the year. At that time, the FASB and IASB will review the comments received on the exposure draft in detail and begin redeliberations.
Board/Other Public Meetings
The Board meeting minutes are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions become final only after a formal written ballot to issue a final Statement, Interpretation, FSP, or Statement 133 Implementation Issue.
|June 18, 2008||Board Meeting—Issues related to the effective date of the proposed Statement 128|
|January 23, 2008||Board Meeting—Issues relating to drafting.|
|July 25, 2007||Board Meeting—Issues relating to drafting.|
|March 28, 2007||Board Meeting— Issues related to convergence differences between IAS 33, Earnings per Share, and FASB Statement No. 128, Earnings per Share.|
|April 5, 2006||Board Meeting—Issues related to comment letters received and IASB conclusions|
|September 21, 2005||Board Meeting—Issues related to the effective date of and comment period for proposed Statement 128|
|May 11, 2005||Board Meeting—Issues related to proposed revisions to APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements|
|March 2, 2005||Board Meeting—Issues related to proposed revisions to Opinion 20 and Statement 3|
|December 22, 2004||Board Meeting—Issues related to proposed revisions to Opinion 20 and Statement 3|
|November 24, 2004||Board Meeting—Issues related to proposed revisions to Statement 128|
|November 3, 2004||Board Meeting—Issues related to proposed revisions to ARB No. 43, Restatement and Revision of Accounting Research Bulletins, Chapter 4 and APB Opinion No. 29, Accounting for Nonmonetary Transactions|
|October 6, 2004||Board Meeting—Issues related to proposed revisions to Statement 128|
|September 15, 2004||Board Meeting—Issues related to proposed revisions to Opinion 29|
|August 11, 2004||Board Meeting—Issues related to proposed revisions to ARB 43, Chapter 4|
|August 4, 2004||Board Meeting—Issues related to proposed revisions to Statement 128|
|June 16, 2004||Board Meeting—Issues related to balance sheet classification|
|March 24, 2004||Board Meeting—Possible revisions to ARB 43, Chapter 3A|
|February 4, 2004||Board Meeting—Issues related to drafting of proposed Statement on liability classification|
|October 23, 2003||Board Meeting—Joint meeting with the IASB to discuss remaining liability classification Issues|
|October 15, 2003||Board Meeting—Remaining Exposure Draft issues|
|June 11, 2003||Board Meeting—Scope issues and EPS differences|
|June 4, 2003||Board Meeting—Liability classification|
|May 7, 2003||Board Meeting—Retroactive application and inventory costing|
|April 22, 2003||Board Meeting—Asset exchanges and commercial substance|
|March 5, 2003||Board Meeting—Voluntary accounting changes and transition framework|
|January 29, 2003||Board Meeting—Asset exchanges|
|December 18, 2002||Board Meeting—Changes in depreciation method and discretionary changes in accounting principle|
|November 13, 2002||Board Meeting—Short-term convergence project scope|
|October 2, 2002||Board Meeting—Proposal for agenda and research projects|
|September 18, 2002||Joint meeting with the IASB|
After acknowledging that convergence of IFRS and U.S. GAAP is a primary objective, the FASB and IASB made progress in reducing key differences between U.S. GAAP and IFRS by establishing a formal liaison relationship, monitoring relationships for major projects, and undertaking joint projects. However, many differences still existed. While not necessarily important issues for either Board individually, they were, collectively, major irritants to those using, preparing, auditing, or regulating cross-border financial reporting. Consequently, on October 2, 2002, the Board added a short-term international convergence project to its agenda to address those differences. The project is being conducted jointly with the IASB.
The short-term convergence project is only intended to address differences that meet the criteria for inclusion in the project scope. It will not address differences that are associated with issues requiring comprehensive reconsideration. Those differences will be addressed over a longer term as the Boards coordinate agenda setting in the future.
For each difference, each Board deliberates the effects of using the alternative accounting treatments based on shared research. If convergence around a high-quality solution can be achieved without comprehensive reconsideration of the issue, one or both Boards propose changes to existing GAAP to achieve convergence. If a particular difference requires more comprehensive reconsideration, the Boards will remove the difference from the scope of the short-term project. If they determine that additional items meet the criteria for inclusion in the short-term convergence project, the Boards may add those items to the project scope.
In addition to the short-term convergence project, the FASB staff is conducting a research project on international convergence. The objectives of the research project are to (1) identify every substantive difference between U.S. GAAP and IFRS, (2) catalog those differences according to the strategy for resolving them, and (3) recommend further agenda decisions to the Board to further the objective of convergence with the IFRS.
Basic Earnings per Share
Mandatorily convertible instruments should be reflected in basic EPS using the two-class method only if holders could participate in current-period earnings with common shareholders. That is, if the mandatorily convertible instrument holders could receive additional consideration (above their contractual return) solely as a result of distributions to common shareholders, then, and only then, would the instrument be considered a participating security and, therefore, included in basic EPS using the two-class method. If the instrument holders could not participate in current-period earnings with common shareholders, those mandatorily convertible instruments would not be included in basic EPS using the two-class method.
Instruments for which the holder has (or is deemed to have) the right to share in current-period earnings with common shareholders should be included in the denominator of basic EPS. Examples of these instruments include (1) instruments that are currently exercisable or shares that are currently issuable at little or no cost to the holder or (2) participating securities that are not measured at fair value with changes in fair value recognized in current-period earnings.
Statement 128 will be amended to clarify that convertible participating securities are included in basic EPS using the two-class method—essentially codifying the requirement in Issue 7 of EITF Issue No. 03-6, "Participating Securities and the Two-Class Method under FASB Statement No. 128."
Diluted Earnings per Share
An entity should compute quarterly and year-to-date diluted EPS independently from any prior interim-period computation. The weighted-average computations for calculating contingently issuable shares will be eliminated; entities should include these shares in diluted EPS from the beginning of the quarterly and year-to-date periods in which the conditions for issuance are satisfied (or at the date of the contingent share agreement, if later).
The Board decided the following for instruments that can be settled in cash or shares:
- When an entity has issued a contract that may be settled either in shares or in cash at the entity’s option, the entity should presume that the contract will be settled in shares if the effect is dilutive. That presumption may not be overcome, regardless of past practice or stated policy to the contrary.
- The Board clarified that share settlement must be assumed (if dilutive) for the purpose of computing diluted EPS for an otherwise cash-settled instrument that contains a provision that requires or permits share settlement under certain circumstances. The Board decided to make one exception to this guidance for an instrument that does not permit share settlement under any circumstance other than the legal bankruptcy of the issuer.
The denominator of the computation of diluted EPS should not be increased by additional common shares resulting from the exercise or conversion of instruments that are freestanding or separately accounted for as a component of a compound instrument and that are measured at fair value with changes in fair value recognized in earnings for the period. Examples of these instruments include any instruments measured at fair value with changes in fair value recognized in earnings for the period that would otherwise be subject to the treasury stock method, the if-converted method, or the two-class method. Additionally, an entity should not increase the denominator of the computation of diluted EPS by additional common shares resulting from the exercise of a financial instrument or contract subject to FASB Statement No. 123 (revised 2004), Share-Based Payment, that is recognized (or will be recognized) as a liability and measured under that Statement’s fair-value-based measurement approach. The Board decided that the change in fair value (or fair-value-based amount as it relates to share-based-payment awards) recognized in earnings sufficiently reflects the dilutive effect of those instruments on current shareholders for the period, thus eliminating the need to include such instruments in the determination of diluted EPS. The Board acknowledged that in some cases, which it thinks would be rare, the inclusion of these instruments in EPS under the treasury stock and reverse treasury stock methods would be dilutive.
The treasury stock method should be modified for all instruments subject to the treasury stock method that are not remeasured at fair value at each reporting period. The modified treasury stock method should (1) include the end-of-period value of the liability as an assumed proceed (if applicable), and (2) use the end-of-period market price in computing the number of incremental shares in the determination of diluted EPS.
The guidance in proposed FASB Staff Position (FSP) FAS 128-a, Computational Guidance for Computing Diluted EPS under the Two-Class Method, will be codified into Statement 128 through the convergence project, rather than being issued in the form of an FSP.
Actual distributions (as opposed to hypothetical distributions) to outstanding common stock should be used in the computation of diluted EPS under the two-class method.
Transition and Effective Date
The Board decided not to provide a specific effective date in the revised Exposure Draft on earnings per share. Rather, the Board will determine the effective date after it completes redeliberations of the revised Exposure Draft. The Board did decide, however, that the revised Exposure Draft should indicate that a final Statement would be effective as of the beginning of a fiscal year. Early adoption will not be permitted.
Retrospective application is required for all changes to Statement 128 except for contracts that were either settled in cash prior to adoption or modified prior to adoption to require cash settlement; for these types of contracts, retrospective application is prohibited.
The IASB’s Short-Term Convergence Project
Concurrently, the IASB has deliberated several issues in the short-term convergence project. View an update on the status of the issues led by the IASB on the project.
Other Short-Term Convergence Projects