Dear reader,

my past week was extremely busy. Was it for you? I imagine many of you staying late in the office fine-tuning disclosures, checking reporting packages, and discussing audit issues.

I was busy because of work. I was also busy because I chased perfection.

45 minutes of searching for a better image for my Tuesday's post on LinkedIn? Check.

30 minutes scrolling down Brainy Quotes for the same reason? Check. (I had a quote already, and it was good. Yet I wanted a perfect one).

75 minutes of a work call trying to improve an irreparable process instead of cancelling it? Check.

We all complain about too little time. We insist we deserve more. And we often sacrifice too much of this precious resource running after improvements that often make no sense (and no difference).

Now, let's dive into this week's accounting insights that are actually worth your valuable time.

Earnings per Share is one of the widely used ratios. In simplest terms, the ratio shows the portion of total earnings per single share of common stock ("basic EPS"). If earnings are spread over existing and potential common shares, such as stock options and stock awards, an entity reports "diluted EPS".

Upcoming IFRS 18 provides more flexibility to preparers by allowing

companies to present additional amounts per share if they use any of the following subtotals as a numerator (IAS 33 paragraph 73B):

Operating profit or loss and similar subtotals in accordance with IFRS 18.69; Total of profit and loss and similar subtotals in accordance with IFRS 18.86; Gross profit or loss (revenue minus cost of sales) and similar subtotals in accordance with IFRS 18.118.

Companies are also permitted to use a management-defined performance measure in accordance with IFRS 18 (paragraph 117).

This option can be useful for reporters wanting to show performance of a segment or a business line in proportion to the weighted average of common shares held by shareholders.

Tip: Preparing for IFRS 18 may trigger reassessment and even inclusion of additional EPS ratios reflecting more accurately an entity's presentation and communication goals.

Do we need thresholds for disaggregation of items presented in financial statements?

With IFRS 18 presentation of financial statement information becomes more streamlined for IFRS reporters.

US GAAP, on the other hand, is more flexible and broader in terms of presentation requirements.

Regulation S-X and its respective Rules issued by the US SEC define a set of presentation requirements for financial statements for public companies.

The Rule 5-02 "Balance Sheets" defines main categories of the statement - for example, current assets, broke down further to cash and cash items, marketable securities, accounts and notes receivable, inventories, etc.

Interestingly, the Rule also sets specific thresholds for disaggregation of single items within a category. In particular, for notes receivable, disaggregation is required if an item accounts for 10% or more of aggregate accounts receivable. For items of other current assets and other assets, other current liabilities, and other liabilities, the disaggregation threshold is set at 5%.

A minor threshold is also set by Rule 5-03 "Statements of Comprehensive Income" and relates to excise taxes within the "Net Sales and Gross Revenues Category" (present separately if 1% or more).

The advantages of this approach are obvious: easy, convenient, no need for complex assessments.

There are disadvantages too:

Comparability between periods if percentages drop down significantly; Excluding items close to the threshold - e.g. 4.9% does not get disclosed; 5% will. Assuming that quantitative threshold alone satisfies the information needs of users. Qualitative characteristics - such as risk profile or geography - can be relevant too.

IFRS provides neither a threshold, nor "a rule of thumb".

In my experience - and I am sure yours too - entities develop and follow their own numerical thresholds and materiality levels. I am quite confident that adoption of IFRS 18 will not be an exception, possibly even taking some inspiration from US GAAP.

What is new at the IASB?

The research project on intangibles moves further, seeking "discrete meaningful improvements to IAS 38."

The IASB focuses on definition and recognition criteria for intangible assets by using two test cases most commonly raised by stakeholders:

Cloud computing (Software-as-a-Service, Platform-as-a-Service, Infrastructure-as-a-Service) and; Agile software development.

Other potential test cases shall focus on new types of intangible assets, in particular AI-related data and solutions. Stakeholders pointed out the increasing importance of data for training their own AI applications.

Stay tuned for a summary of these "long accounting papers" in one of my upcoming LinkedIn posts and newsletters.

Have a great accounting week (and protect your time from perfection).

Best,

Barbora