A post-implementation review of the Financial Accounting Standards Board’s 1997 standard on earnings per share found the standard generally achieved its purpose.
The post-implementation review by FASB’s parent organization, the Financial Accounting Foundation, concluded Wednesday that FASB Statement No. 128, Earnings Per Share, accomplished its objectives of simplifying the computation of earnings per share and achieving greater compatibility with international accounting standards. The review also concluded that Statement 128 provides useful information to users of financial statements.
“The PIR report on Statement 128 tells us that, overall, the standard on earnings per share is useful to investors and brought about greater comparability with International Financial Reporting Standards,” said FASB chair Russell G. Golden in a statement. “Though organizations with complex capital structures sometimes find the standard difficult to apply, overall the standard is operational. Therefore, the FASB does not plan to undertake a comprehensive review of Statement 128.”
The post-implementation team developed its final report based on input from financial statement users, preparers, auditors, and regulators. The Statement 128 PIR team reached the following overall conclusions:
• Statement 128 resolved the issues underlying its stated need and achieved its expected benefits—as it improved and simplified the computation of EPS, and achieved compatibility with international standards.
• Investors rely significantly on EPS (particularly diluted EPS) that is computed using the requirements of Statement 128. Investors also find the information reported by organizations about EPS in their financial statements useful.
• Overall, Statement 128 is understandable, can be applied as intended, and enables information to be reported reliably. Organizations with complex capital structures sometimes find it difficult to apply Statement 128 because of the complexity of the financial instruments that they issue (particularly instruments with participating features).
• The changes made to financial and operating practices as a result of Statement 128 were not significant or unexpected.
• There were no significant unanticipated consequences resulting from the application of Statement 128.
• Overall, implementation and ongoing compliance costs associated with Statement 128 were not significant, and were consistent with both FASB’s and stakeholders’ expectations.
The PIR team had no standard-setting process recommendations as a result of the review.
In his response, Golden acknowledged that some companies have had trouble with the standard. “We recognize that the PIR team reported that entities with complex capital structures sometimes find it difficult to apply Statement 128,” he wrote. “However, given the PIR team concluded that Statement 128 is understandable, can be applied as intended, and enables information to be reported reliably, the FASB does not plan to undertake a comprehensive review of Statement 128.”
The Financial Accounting Foundation has been producing a series of post-implementation reviews of older FASB standards in recent years. However, the next PIR of a FASB standard will not be conducted for a few years, as the PIR team has completed all the reviews of significant FASB standards that have been effective for at least two to three years.
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