Statements on Standards for Accounting

Question: Discuss about the Statements on Standards for Accounting. Answer: Introduction: IAS 33 as we all know is an accounting standard in EPS. The basic objective behind IAS 33 is to enable the users of the financial statements to compare the performance of the company vide EPS among different financial reporting periods and also allow different companies to compare the financial statements of the same reporting periods on the basis of EPS. (Accounting, 2017) All entities whose shares are listed and are traded publicly are required to report both basic as well as diluted EPS. Basic EPS is calculated by dividing the profit or loss by the weighted average number of ordinary shares outstanding during the period for which the same is getting reported. The profit or loss for computing the EPS is calculated after deducting all expenses, taxes dividends i.e. this is the amount which is left for carrying over to the balance sheet. For calculating the denominator i.e. the number of shares at the beginning of the reporting period must be reduced by shares bought back during the reporting period or if the shares are issued during the reporting period then the shares issued as adjusted with the time weighing factor should be added with the shares at the beginning of the reporting period. (AICPA., 2016) However in the case of calculating diluted EPS, the numerator is adjusted keeping in mind the after tax effect of the savings if the potential equity shares get converted into equity shares and in the case of denominator the number of shares are adjusted keeping in mind the diluted equity shares. For example in the case of convertible securities the denominator will be increased with the number of shares that will be issued on conversion and the numerator will be adjusted with the after tax effects of the interest as well the dividend. (Brown, n.d.) There are specific disclosure requirements in regards to the reporting of EPS. The breakup of the amount included in the numerator for the calculation of EPS needs to be disclosed separately showing a reconciliation of the same. If any share transactions take place after the balance sheet date but before the finalization of the accounts then these transactions should be reported stating the difference in the EPS assuming the transactions if would had taken place before the balance sheet date then the difference arising due to the same. The reporting of anti-dilutive potential shares also needs to be reported as they were not included in the calculation of diluted EPS. (Codification of statements on standards for accounting and review services, 2015) We have reviewed the financials and reporting of the EPS of 10 companies listed in Muscat Securities Market. The extent of compliance in terms of calculation, presentation and disclosure are as follows: Al Anwar Ceramic Tiles Company SAOG The company follows IAS 33. The company has reported EPS on the face of the statement of comprehensive income and the detailed calculation of how the figure has been arrived has been provided at the notes to the financial statements. The company has mentioned its weighted average number of equity shares and the profit after tax of the company to arrive at the figure of the EPS. A comparative figure corresponding to the previous year has also been mentioned so that a quick review of the EPS could easily be made. Hence it could be seen that the company is fully complying with the IAS 33. (Earnings, 2012) Al Madina Insurance Company The company follows IAS 33. The company has reported EPS on the face of the statement of comprehensive income and the detailed calculation of how the figure has been arrived has been provided at the notes to the financial statements. The company has mentioned its weighted average number of equity shares and the profit after tax of the company to arrive at the figure of the EPS. A comparative figure corresponding to the previous year has also been mentioned so that a quick review of the EPS could easily be made. Hence it could be seen that the company is fully complying with the IAS 33. The company has also mentioned that there are no shares of the company which can have a dilutive effect. (Earnings per share, 2013) Al Maha Ceramics SAOG The company has only reported the basic EPS on the face of the statement of comprehensive income and the detailed calculation of how the figure has been arrived has been provided at the notes to the financial statements. (Ernst Young., 2016) The company has mentioned its weighted average number of equity shares and the profit after tax of the company to arrive at the figure of the EPS. A comparative figure corresponding to the previous year has also been mentioned so that a quick review of the EPS could easily be made. However the company has not mentioned diluted EPS and neither has it mentioned whether there are any such potential shares which could have an impact on the diluted EPS. Hence it could be seen that the company is not fully complying with the IAS 33. AL Jazeera Steel Products Company SAOG The company has only reported the EPS on the face of the consolidated and separate statement of comprehensive income and the detailed calculation of how the figure has been arrived has been provided at the notes to the financial statements for both Group Company and the parent company. The company has mentioned its weighted average number of equity shares and the profit after tax of the company to arrive at the figure of the EPS. A comparative figure corresponding to the previous year has also been mentioned so that a quick review of the EPS could easily be made. For the diluted EPS it has specifically mentioned that there is no dilutive potential share s so the basic EPS is same as that of dilutive EPS. Hence it could be seen that the company is fully complying with the IAS 33. (Fischer, Taylor and Cheng, 2008) Galfar Engineering Contracting SAOG Subsidiaries The company has only reported the loss per share on the face of the consolidated and separate statement of comprehensive income and the detailed calculation of how the figure has been arrived has been provided at the notes to the financial statements for both Group Company and the parent company. The company has mentioned its weighted average number of equity shares and the loss after tax of the company to arrive at the figure of the loss per share. A comparative figure corresponding to the previous year has also been mentioned so that a quick review of the loss per share could easily be made. For the diluted earnings/loss per share it has not mentioned anything whether there is any dilutive potential share or not. Hence it could be seen that the company is fully complying with the IAS 33. (Flood, n.d.) Muscat Finance SAOG The company has only reported the basic EPS on the face of the statement of comprehensive income and the detailed calculation of how the figure has been arrived has been provided at the notes to the financial statements. The company has mentioned its weighted average number of equity shares and the profit after tax of the company to arrive at the figure of the EPS. A comparative figure corresponding to the previous year has also been mentioned so that a quick review of the EPS could easily be made. However the company has mentioned diluted EPS there are no potential shares which could have an impact on the diluted EPS. Hence it could be seen that the company is fully complying with the IAS 33. It has also given a note showing how the company has treated the stock dividend of shares without consideration in calculating the weighted average number of equity shares. (Flood, n.d.) Muscat National Holding Company SAOG and its Subsidiaries The company has only reported the EPS on the face of the statement of comprehensive income and the detailed calculation of how the figure has been arrived has been provided at the notes to the financial statements. However it has mentioned only for the group company and not for the parent company which is also required by IAS 33. However the same has been reported in the notes of accounts i.e. both for the group company and the parent company. The company has mentioned its weighted average number of shares and the profit after tax of the company to arrive at the figure of the EPS. A comparative figure corresponding to the previous year has also been mentioned so that a quick review of the EPS could easily be made. However the company has mentioned diluted EPS there are no potential shares which could have an impact on the diluted EPS. Hence it could be seen that the company is fully complying with the IAS 33. (International accounting standards explained, 2009) Port Services Corporation SAOG The company has only reported the EPS on the face of the statement of comprehensive income and the detailed calculation of how the figure has been arrived has been provided at the notes to the financial statements. It has also mentioned the EPS for the discontinued operations separately which is specifically required by the IAS 33. The company has mentioned its weighted average number of shares and the profit after tax of the company to arrive at the figure of the EPS. A comparative figure corresponding to the previous year has also been mentioned so that a quick review of the EPS could easily be made. However the company has mentioned diluted EPS there are no potential shares which could have an impact on the diluted EPS. Hence it could be seen that the company is fully complying with the IAS 33. (Iqbal, Iqbal and Aslam, n.d.) Shell Oman Marketing Company SAOG The company has reported both the basic and diluted EPS on the face of the statement of comprehensive income and the detailed calculation of how the figure has been arrived has been provided at the notes to the financial statements. The company has mentioned its weighted average number of shares and the profit after tax of the company to arrive at the figure of the EPS. A comparative figure corresponding to the previous year has also been mentioned so that a quick review of the EPS could easily be made. However the company has mentioned diluted EPS there are no potential shares which could have an impact on the diluted EPS. Hence it could be seen that the company is fully complying with the IAS 33. (Melville, 2015) Takaful Oman Insurance SAOG The company has reported both the basic and diluted EPS on the face of the statement of comprehensive income and the detailed calculation of how the figure has been arrived has been provided at the notes to the financial statements. The company has mentioned its weighted average number of shares and the profit after tax of the company to arrive at the figure of the EPS. A comparative figure corresponding to the previous year has also been mentioned so that a quick review of the EPS could easily be made. However the company has not mentioned diluted EPS separately neither have it stated that whether there are any potential shares which could have an impact on the diluted EPS. Hence it could be seen that the company is not fully complying with the IAS 33. (Rayman, n.d.) Other Factors Affecting EPS There are various factors which affect the variance in the EPS of the company. Apparently it seems that increase in the profitability of the company would result in higher EPS of the company. However this is not always true as the increase in profitability would definitely increase the numerator for calculating the EPS however if there is an increase in the number of shares issued during the year then it would result in the fall of EPS despite there has been an increase in the profitability of the company as it would lead to increase in the denominator which would definitely decrease the EPS (Tierney and Tierney, 2007). On the contrary although there could be a fall in the profits of the company which should result in the fall of the EPS of the company but if there would had been buy back of the shares during the reporting period, it would automatically reduce the denominator i.e. decrease in the number of shares outstanding resulting in increase in the EPS of the company. So increas e in the profits of the company should not be considered as the only factor in the increase in the EPS of the company (Shen jie., 2013). The potential shares getting diluted in the reporting period, the increase in the profits of the company, the decrease in the profitability of the company, the buy back of the shares during the year in the company, fresh issue made during the year which also results in the increase of the shares during the year, bonus shares given during the year, etc are the various factors which affect the EPS of the company. IAS 33 very clearly specifies that reconciliation needs to be provided to show how the numerator and denominator has been arrived to compute the EPS of the company. Keeping in mind all the above factors one should clearly examine the reconciliation provided in the financials to find out the exact reason behind the increase and decrease in EPS of the company (Subramani, 2011). The interest rates prevailing in the market, government regulation s i.e. change in the tax rates in the company also have a significant effect in the calculation of diluted EPS. In the case of convertible securities it is required to take the after tax effect of the interest which is required to pay on the securities which would get converted into shares in the due course. In such cases the taxation rates has a significant impact on the calculation of the EPS. Higher would be the taxation rate, lower would be the diluted EPS as it would lead to lower savings of the company and the company will ultimately end up paying higher taxes of the company although it helps in saving the interest of the company. Hence all the above stated factors are responsible for increase or decrease in EPS of the company and no factor should be considered in isolation. Conclusion IAS 33 which is globally recognized standard which would help in better presentation of the earnings per share of the company. Since it is globally recognized hence will enable the users of the financial statements to compare on a standardized basis and the best part are that there will no intervention of the local bodies to manipulate the data (Wink and Corradino, 2011). Since the presentation will be on a same basis it would be helpful for the users of the financial statements to make an n easy comparison. It would also help the Omani corporate sector to line up with the global standards which would help them to compete on a global scale. Thus Omani corporate sector will soon be seen competing on a global scale with the international companies. (Tracy, 2013) To conclude, the above discussion on IAS 33- Earnings per share has laid down the basic ides of the whole of the standard. It has explained the practical implementation of the calculations, recognition and disclosure of the earnings per share by the companies as per IAS 33. 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