Potential voting rights

Learning objectives

• Identify the potential voting rights (options, warrants, convertible instruments) that are relevant to the assessment of power.L2, L3
• Justify whether or not a potential right is substantive in the light of its terms of exercise.L3

Normative references

• IFRS 10 §B24To be substantive, rights also need to be exercisable when decisions about the direction of the relevant activities need to be made. Usually this means that they are currently exercisable, but sometimes a right can be substantive even though it is not currently exercisable (examples 3A to 3D).
• IFRS 10 §B47In assessing control, the investor considers its potential voting rights and those held by other parties (rights to obtain voting rights, arising for example from convertible instruments, options or forward contracts); they are considered only if they are substantive (B22 to B25).

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

2 questions

• Potential voting rights, such as options, warrants or convertible instruments, enter the assessment of power whether or not they are substantive.L2
• Cèdre SA holds 30% of the voting rights of Lierre SA and a call option over a further 25% of rights, exercisable at any time at a price close to fair value. Case assumption: the option is substantive. How does this option enter the assessment of Cèdre's power?L3