Potential voting rights

Learning objectives

• Identify the instruments that can affect influence (warrants, options, convertible instruments).L2, L3
• Assess whether potential voting rights are taken into account, disregarding management's intentions and the financial ability to exercise them.L3

Normative references

• IAS 28 §7Share warrants, share call options, debt or equity instruments convertible into ordinary shares and similar instruments may, if exercised or converted, increase the entity's voting power or reduce another party's voting power (potential voting rights). The assessment of significant influence considers the existence and effect of potential voting rights that are currently exercisable or convertible, including those held by other entities; a right that can be exercised or converted only at a future date or on the occurrence of a future event is not currently exercisable.
• IAS 28 §8In assessing whether potential voting rights contribute to significant influence, the entity examines all facts and circumstances that affect them (terms of exercise, other contractual arrangements considered individually or in combination), except the intentions of management and the financial ability to exercise or convert those rights.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

2 questions

• In assessing significant influence, the entity takes account of its management's intention to exercise a call option and of its financial ability to do so.L2
• Alba SA holds 15% of the voting rights of Brise SA and warrants, currently exercisable, that would give it a further 10 points. Alba's management has no intention of exercising them and lacks the necessary funds (case data). How do these warrants enter the assessment of significant influence?L3