Earnings Per Share Reporting: Time For An Overhaul?

The preparation of earnings per share (EPS) disclosures has become very complex because of attempts by standard setters to make these disclosures reflect the effects of potentially dilutive securities. A critical evaluation of current EPS disclosures suggests that they are of questionable usefulness. In fact, there is a need for a comprehensive evaluation and overhaul of EPS reporting standards. One way to modify EPS reporting to increase its usefulness without significantly increasing the computational burden would involve the following changes: 1. eliminating the primary EPS, the treasury stock method, and the 3% materiality standard for dual presentation, and 2. restoring the basic EPS to the face of the income statement, with supplementary disclosure of the effects of individual dilutive securities.