Earnings per share

 This paper aims at providing an analysis of the disclosures in financial statements required for Earning per share while providing information on financial reports.  It offers the various principles applied while presenting earning per share on the basis of provided reporting standards. Earnings per share refers to the part of a firm’s profit that is normally allocated every share of the common stock which and is usually an indicator of the firm’s profitability (Epstein, Bragg & Nach, 2009).

My research mostly utilized an online approach which involved trying to cobble links together on this topic. Such links guided me through the research so that I was able to draw upon unlimited authoritative sites with unlimited resources. This methodology allowed for singling out the specific sources with relevant information.

A reporting entity is required by the ASC 260-10-50-1to disclose various information on EPS for every period that a presentation of income statement is made. A numerators’ and denominators’ reconciliation for the income that has been obtained from operations that are continuing. The share amount impacts of all the securities that normally affect EPS and the individual income should be included in this reconciliation.  There should also be a description given by the reporting entity of the subsequent occurrences that take place after the closure of the most previous balance sheet, but before the financial records are issued (Walhen, Jones & Pagach,2012). Such events should have a material alteration on the quantity of common shares outstanding or the outstanding quantity of potential common shares .Such occurrences include the acquisition or issuance of common shares   , a split of stock or related stock dividend or a contingency decision under an agreement of a contingent stock. The FASB statement no. 128 mandates all companies that are publically owned to disclose the basic EPS if their capital structures are simple and have no potential common shares relating to stock options, convertible securities or warrants (Epstein et. al 2009). A firm that has potential common shares possesses a capital structure that is complex and should disclose both the diluted EPS and its basic EPS. A firm that has a capital structure which is simple but has no potential common shares should ensure Earning Per Share for the net income and its continuing operations are reported on the income statement’s face (Epstein et. al 2009). The disclosure for EPS related to the halted operations and items that are extra-ordinary should be done in financial statements notes or income statement.  

The accounting standards on reporting exclude the disclosure of individual transactions of an entity which fail to match the definition of an item considered extraordinary as displayed in the income statement. This means that the presentation of earning per share effect of restructurings, asset impairment, charges done on the basis of ASC 420, obligations of cost disposal or exit should not be presented on a firm’s income statement. The reporting company’s may choose to use footnotes for the disclosure of earning per share effects (Epstein et. al 2009).  ASC 230-10-45-3 does not allow the disclosure of cash flow for each share. In the same manner, SEC FRP 202.04 points out that the reporting entity should avoid per share information other than that which connects to net assets, net income and dividend on financial statements (Epstein et. al 2009). If such an entity has to report on certain amounts of per-share which ASC 260 does not require, it should follow the provided guidelines when computing those amounts and should disclose it in the notes but not on financial statement’s face. They should also be labeled as net-of –tax or pretax.  

References

Epstein, B. J., Bragg, S. M., & Nach, R. (2009). Wiley Gaap 2010: Interpretation and application of generally accepted accounting principles. [Includes new codification]. Hoboken, NJ: Wiley. 1101