International

Appendix

Question 1
Mandatorily convertible instruments and instruments issuable for little or no cash or other consideration:

1(a) - Do you agree that the weighted average number of ordinary shares for basic EPS should include only instruments that give (or are deemed to give) their holder the right to share currently in profit or loss of the period? Why or why not?

BDO agrees with the principle that the weighted average number of ordinary shares for basic EPS should include only instruments that give their holder the right to share in profit or loss of the period as stated in paragraph 18. However, question 1(a) refers to “… the right to currently share in profit or loss of the period…”. The meaning of “currently” in this question is not clear. Does it refer to the balance sheet date or some other date?

Similarly, the meaning of “currently” as used in paragraph 19 is not clear, when it is noted that “Ordinary shares that are currently issuable for little or no cash or other consideration are deemed to have the right to share with ordinary equity holders in profit or loss for the period”.

1(b) - Does the exposure draft apply this principle correctly to mandatorily convertible instruments and ordinary shares issuable for little or no cash or other consideration? Why or why not?

Mandatorily convertible instruments

IAS 33 Earnings per share, paragraph 23, addresses mandatorily convertible instruments, indicating that “Ordinary shares that will be issued upon the conversion of a mandatorily convertible instrument are included in the calculation of basic earnings per share from the date the contract is entered into”. Mandatorily convertible instruments are not specifically addressed in the ED although we note that the Basis of Conclusions (BC 11 and 12) indicates that they are not included in basic EPS unless they are participating instruments.

We are of the view that the last sentence of paragraph 19 of the ED could possibly address mandatorily convertible instruments. The last sentence of paragraph 19 of the ED states that “Ordinary shares are currently issuable if the holder of an instrument has a current ability to become an ordinary equity holder”. We are unclear on how to apply this sentence to mandatorily convertible instrument. Does the phrase “current ability to become an ordinary equity holder” mean that instruments mandatorily convertible at a future date are not currently issuable, because they do not have an immediate or present ability to become an equity holder? If so, we disagree that instruments mandatorily convertible at a future date should not be included in the calculation of basic EPS. Alternatively, the phrase “current ability to become an ordinary equity holder” could mean that instruments mandatorily convertible at a future date are currently issuable, because they do have an ability to become equity holders at a future date. We support this latter interpretation.

It would be helpful for the text of the proposed standard to be amended in order that these instruments are covered, rather than the guidance being included in the Basis of Conclusions.

Ordinary shares issuable for little or no cash or other consideration

We are of the view that the principle is correctly applied to ordinary shares issuable for little or no cash or other consideration, because the holders of the instrument has the current ability to become an ordinary equity holder.

Question 2
Gross physically settled contracts to repurchase an entity’s own shares and mandatorily redeemable ordinary shares:

Do you agree with the proposed treatment of gross physically settled contracts to repurchase an entity’s own shares and mandatorily redeemable shares? Why or why not?

Subject to the clarification of our concerns expressed in questions 1(a) & (b), we agree with the proposed treatment of gross physically settled contracts to repurchase an entity’s own shares and mandatorily redeemable shares.

Question 3
Instruments that are measured at fair value through profit and loss:

Do you agree that the fair value changes sufficiently reflect the effect on ordinary equity holders of instruments measured at fair value through profit and loss and that recognising those changes in profit and loss eliminates the need for further adjustments to the calculation of EPS? Why or why not?

We agree, in principle, that the fair value changes sufficiently reflect the effect on ordinary equity holders of instruments measured at fair value through profit and loss and that recognising those changes in profit and loss eliminates the need for further adjustments to the calculation of EPS.

Question 4
Options, warrants and their equivalents:

4(b) - Do you agree that to calculate diluted EPS an entity should assume the settlement of forward sale contracts on its own shares in the same way as options, warrants and their equivalents? Why or why not?

We agree that to calculate diluted EPS an entity should assume the settlement of forward sale contracts on its own shares in the same way as options, warrants and their equivalents, because this is consistent with the approach taken in the ED that the final transaction resulting from these instruments has already taken place.

4(b) - Do you agree that ordinary shares arising from the assumed exercise or settlement options, warrants and their equivalents should be regarded as issued at the end-of-reporting market price? Why or why not?

We agree with the proposals because:

• it reflects the effect on shareholders at the balance sheet date;
• it reflects the most current price and market conditions;
• it results in simplification of the calculations; and
• it is in line with the balance sheet approach in other IFRSs.

Participating instruments and two-class ordinary shares:

Do you agree with the proposed amendments to the application guidance for participating instruments and two-class ordinary shares? Why or why not?

We agree with the proposed amendment.

Question 6
Disclosure requirements:

Are additional disclosures needed? If so, what additional disclosures should be provided and why?

We consider that additional disclosures are not required.

¹BDO International is a world wide network of public accounting firms, called BDO Member Firms, serving international clients. Each BDO Member Firm is an independent legal entity in its own country.

The network is coordinated by BDO Global Coordination B.V., incorporated in the Netherlands, with an office in Brussels, Belgium, where the International Executive Office is located.

 ED Simplifying Earnings per Share - Proposed amendments to IAS 33.pdf