Please discuss and answer these questions below in detail. 1. Does the Sarbanes-
ID: 2519457 • Letter: P
Question
Please discuss and answer these questions below in detail.
1. Does the Sarbanes-Oxley Act require any additional disclosure for EPS? Do you think any of these requirements are enough to prevent fraud? Why or why not?
2. Is it possible for a capital structure to be simple even if it contains securities other than common stock? If yes, under what circumstances?
3. Is preferred stock that can be converted to common stock part of the equation regarding diluted earnings per share? Also, would participating preferred stock have a dilutive effect on EPS?
4. Do you really think it is necessary to report EPS and dilutive EPS? Since dilutive has not really happened, does this figure really have value to investors? What do you think?
Explanation / Answer
1. Sarbanes Oxley act requires Disclosure under Sections 404, 406 and 407 of the Sarbanes-Oxley Act of 2002 for EPS but not additional Disclosure but as a general Disclosure
2. Yes, it is possible for a capital structure to be simple even if it contains securities other than common stock under Preference shares because there is no risk and also will not put for repayment until the end of the company
3. Yes, While taking the other stock which are converted from preferred stock to common stock the DPS effect should also consider the participating preferred stock. so the same will have dilutive effect on EPS.
4. Yes, It is equally important to report the dilutive EPS and EPS becuase in case of conversions pending and when it is actually happened then the effect of EPS is uncomparable, so for differentiating the comparision it is necessary.