Public Company Reporting Topics
Diluted earnings per share with multiple securities, Securities and Exchange Commission (SEC) disclosures, internal control certifications, and recent disclosure standards.
By SimplyCPA · Updated 27 September 2026
On this page (7)
Why this topic matters
Public companies face reporting requirements beyond those of private companies: complex diluted earnings per share (EPS), Securities and Exchange Commission (SEC) disclosure rules, management's discussion and analysis (MD&A), measures that depart from Generally Accepted Accounting Principles (GAAP), internal control certifications under the Sarbanes-Oxley Act (SOX), and several recent disclosure standards. Business Analysis and Reporting (BAR) Area II builds on the basics covered in Financial Accounting and Reporting (FAR).
Diluted EPS with several securities
- Compute basic EPS.
- Compute the incremental EPS for each potentially dilutive security — the increase in the numerator ÷ the increase in shares:
- Options and warrants (treasury stock method): numerator effect $0, so they are the most dilutive when in the money.
- Convertible preferred stock: preferred dividends ÷ shares on conversion.
- Convertible bonds: after-tax interest ÷ shares on conversion.
- Rank securities from lowest to highest incremental EPS and add them one at a time, recomputing diluted EPS. Stop when the next security would increase EPS (antidilutive).
- The control number is income from continuing operations attributable to common shareholders — the same shares are then used for net income per share even if antidilutive there.
EXAMPLE: Net income $1,000,000; 500,000 shares; basic EPS $2.00.
Convertible bonds: after-tax interest $120,000 for 100,000 shares → incremental $1.20.
Convertible preferred: dividends $300,000 for 100,000 shares → incremental $3.00 (above $2.00 → antidilutive).
Diluted EPS with bonds = (1,000,000 + 120,000) ÷ 600,000 = $1.87. The preferred stock is excluded.
Other EPS rules
- Participating securities (shares or units entitled to dividends with common) require the two-class method, allocating undistributed earnings between common and participating securities.
- Contingently issuable shares are included in diluted EPS if the conditions would be met if the period ended at the reporting date.
- Convertible instruments that may be settled in cash or shares are presumed settled in shares for diluted EPS (Accounting Standards Update (ASU) 2020-06), using the if-converted method.
- For year-to-date diluted EPS, the number of incremental shares is a year-to-date weighted average of the quarterly amounts.
SEC disclosure framework
- Regulation S-X — form and content of financial statements (for example, three years of income statements and cash flows, two years of balance sheets for most registrants).
- Regulation S-K — non-financial disclosures: business description, risk factors, legal proceedings, MD&A, executive compensation, and cybersecurity risk management and governance (Item 106).
- Inline eXtensible Business Reporting Language (XBRL) tagging is required for financial statement data in SEC filings.
- Material cybersecurity incidents must be disclosed on Form 8-K within four business days after the company determines they are material.
Management's discussion and analysis
MD&A explains results "through the eyes of management":
- Results of operations — reasons for material changes in revenues and expenses.
- Liquidity and capital resources — sources and uses of cash, material cash requirements.
- Known trends, demands, commitments, events, or uncertainties reasonably likely to have a material effect.
- Critical accounting estimates — estimates involving significant uncertainty, their sensitivity, and how they changed.
Non-GAAP financial measures (Regulation G and Item 10(e))
Measures that exclude or include amounts compared with measures computed under GAAP — adjusted earnings, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), free cash flow — are allowed if the company:
- Presents the most directly comparable GAAP measure with equal or greater prominence.
- Provides a quantitative reconciliation to that GAAP measure.
- Explains why the measure is useful, and doesn't use misleading adjustments (for example, excluding normal, recurring cash operating expenses).
Internal control certifications (SOX)
- Section 302: the chief executive officer (CEO) and chief financial officer (CFO) certify each quarterly and annual report — that it is not misleading, fairly presents the financial condition, and that they are responsible for disclosure controls and internal control.
- Section 404(a): management assesses and reports on the effectiveness of internal control over financial reporting (ICFR) annually, usually using the Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework.
- Section 404(b): the external auditor attests to ICFR for accelerated and large accelerated filers (not non-accelerated filers or emerging growth companies).
- Section 906: criminal certification of periodic reports.
Recent disclosure standards
| Update | Requirement |
|---|---|
| ASU 2023-07 — segment reporting | Significant segment expenses regularly provided to the chief operating decision maker, interim segment disclosures, and full disclosures even for single-segment companies |
| ASU 2023-09 — income tax disclosures | Rate reconciliation in specified categories (percentages and amounts) and income taxes paid disaggregated by jurisdiction; public business entities from 2025 annual periods |
| ASU 2024-03 — expense disaggregation | Notes break relevant expense captions into purchases of inventory, employee compensation, depreciation, intangible amortization, and other natural categories; annual periods beginning after December 15, 2026 |
| ASU 2023-08 — crypto assets | Fair value through net income, separate presentation |
The SEC's 2024 climate-related disclosure rule was stayed in litigation and the SEC stopped defending it in 2025, so it is not currently in effect.
Other public company topics
- Emerging growth companies (revenue under about $1.235 billion) may use scaled disclosures and delayed adoption of new standards for up to five years after an initial public offering (IPO).
- Pro forma information for material business combinations shows revenue and earnings as if the acquisition happened at the start of the period.
- Subsequent events: SEC filers evaluate through the issuance date and do not disclose that date.
How it is tested
- Compute diluted EPS with ranking and antidilution tests.
- Identify required MD&A content and non-GAAP presentation rules.
- Match SOX sections to their requirements and filers.
- Recognize the requirements of recent disclosure standards.
EXAM TIP: Rank dilutive securities by incremental EPS (lowest first) and add them one at a time. A security whose incremental EPS is higher than the running diluted EPS is antidilutive and excluded.