New Accounting Guidance for Earnings-per-share

Set to take effect at the end of the year, FASB clarifies the accounting treament for share-based payment awards.

The staff of the Financial Accounting Standards Board (FASB) has, it seems, increased the rate at which accounting guidance is being issued. The latest offering involves a clarification of the manner in which earnings per share (EPS) is calculated for entities which have issued "participating securities," in addition to common stock,

Indeed, FAS 128, Earnings Per Share, defines EPS as "the amount of earnings attributable to each share of common stock." The board decided to require, with respect to the computation of EPS, the use of the so-called "two class method" in the case of enterprises with participating securities. The two-class method (see paragraph No. 59 of FAS 128) is an earnings allocation formula that determines EPS for each class of common stock and participating securities according to dividends distributed and participation rights in undistributed earnings.

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