An empirical analysis of an application of an alternative measurement model on international accounting standard 33, earnings per share

Purpose The purpose of this paper is to investigate the empirical effects of modifying the calculation of the diluted earnings per share (EPS) number in an international compared to the US accounting setting. The diluted EPS calculation originated in the US Accounting Principles Board Opinion No. 15 (APB 15) and continues in both the US Statement of Financial Accounting Standard No. 128 (SFAS 128), EPS and International Accounting Standard 33 (IAS 33) EPS. Our analysis of the treatment of dilutive warrants and options versus other dilutive convertible securities extends the work of McEnroe and Sullivan (2018), hereafter referred to as McEnroe and Sullivan, 2018 and provides more insight into the impact on the international accounting regulatory environment. Using the McEnroe and Sullivan, 2018 proposed alternative EPS model, we investigate revising the EPS model and analyzing the impact on international data observations. Design/methodology/approach The authors selected our sample from the Compustat Fundamentals Annual Database – North America Daily file. Although using the Global – Daily file would be ideal, the data the authors need to make the alternative EPS calculations is not available in the Global database. The authors pulled data for the years 2010 through 2016 for both the USA and international companies. The authors eliminated companies based upon the criteria described later in the paper (which is comparable to the data restrictions set in McEnroe and Sullivan, 2018). Findings The results are comparable to the results of the US study. The authors find an average increase in diluted EPS to be 4.57 per cent and the median increase to be 2.43 per cent. McEnroe and Sullivan, 2018 found the average increase in diluted EPS to be 5.72 per cent and the median increase to be 3.81 per cent. The authors do not find a significant difference in the overall average percentage increase when looking across all of the years in the data set and comparing the USA to international observations. Overall, the authors further extend the previous conclusion of McEnroe and Sullivan, 2018 that both the USA and international standard setters should consider the alternative diluted EPS model for accounting regulation. Research limitations/implications The study consists of a sample of 262 international firms. An extended study, of all firms subject to International Accounting Reporting Standards (IFRS) might be used by the International Accounting Standards Board and then