Standards – IAS proposes guidance on special dividends.

The Accounting Standards Board sought to limit the effect of special dividends on calculations of earnings per share (eps) last week, writes Phillip Inman.

The board said it was reacting to confusion over the practical implications of proposals for calculating eps in FRED 16.

The exposure draft, issued last June, adopted the same scheme as the International Accounting Standard 33.

Respondents to the draft said they were unsure how the general principles regarding contingently issuable shares, drawn from IAS 33, would be applied in practice. Others said employee share schemes, which are an increasingly common feature in the UK, had not been addressed by the IAS.

In reply, the ASB has issued proposed guidance to supplement the exposure draft. It has also considered when adjustments should be made to prior years’ eps to give better comparisons of figures over time.

The problem, said the ASB, centred on the different accounting effect that a coupling of a special dividend with a share consolidation gives against a share repurchase at fair value, although they have the same effect. Currently, companies would be forced to restate prior years’ eps following the combined transaction.

The board recommended that rather than adjust for special dividends, companies should ‘simply address those occasions where a special dividend is combined with a share consolidation so as to replicate the economic effects of a share repurchase’.

Andrew Lennard, assistant technical director at the ASB, said: ‘It is really a case of how widespread we want to adjust for special dividends.

Our recommendation reflects the view that calculating eps is complicated enough at the moment.’

The consultation period closes 1 May.

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