This free, guided checker walks your finance team through the key decision points for IFRS 10 Potential Voting Rights Assessment. Answer a few questions to see the likely treatment and the evidence to document.
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This tool is a high-level IFRS screening aid for general information only and is not accounting, audit or legal advice. Conclusions require entity-specific evidence and judgement - confirm the treatment with your advisor.
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Potential voting rights include convertible debt, written call options, forward share purchase contracts, warrants, and other instruments that may convert to voting equity under IFRS 10.B38.
Assess control using existing voting rights and contractual arrangements only; the IFRS 10.B38 potential voting rights overlay is not engaged.
Official guidance: IFRS issued standards
IFRS 10.B39 requires current exercisability; rights exercisable only on a future date or contingent on distant events are not considered unless the contingency has been satisfied at the reporting date.
Exclude potential rights that are not currently exercisable from the reporting-date control assessment (IFRS 10.B39).
Official guidance: IFRS issued standards
Rights are not substantive when the investor cannot exercise them without incurring significant economic detriment or when other parties can prevent exercise through their own holdings or contractual blocks.
Disregard non-substantive or protective potential rights when assessing power over the relevant activities (IFRS 10.B22; IFRS 10.B26).
Official guidance: IFRS issued standards
Different instruments carry different conversion mechanics, exercise prices, and barriers that affect whether the investor can obtain majority voting power.
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Official guidance: IFRS issued standards
IFRS 10.B40 requires consideration of all potential voting rights held by the investor and by other parties when assessing whether an investor has power over relevant activities.
Map the potential voting rights held by all parties, not only the investor, before concluding on control (IFRS 10.B40).
Official guidance: IFRS issued standards
Compare voting power on a fully diluted basis only for substantive, currently exercisable rights; assess whether combined existing and potential rights exceed 50 percent or de facto control thresholds.
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Official guidance: IFRS issued standards
Potential voting rights alone do not establish control; the investor must also have exposure to variable returns and the ability to use power to affect returns under IFRS 10.7.
Control is not established where exposure to variable returns, or the link between power and returns, is absent despite voting rights (IFRS 10.7; IFRS 10.17).
Official guidance: IFRS issued standards
IFRS 10.B43-B47 assess whether the investor can direct relevant activities through existing and potential rights when other vote holders are widely dispersed and unlikely to act together.
Potential voting rights do not appear to confer power; continue non-consolidation unless the facts change (IFRS 10.B43).
Official guidance: IFRS issued standards
IFRS 10.B44 notes that potential rights deeply out of the money may not be substantive because exercise would require disproportionate economic sacrifice relative to voting power obtained.
Reassess whether the potential rights are substantive after weighing economic barriers such as out-of-the-money exercise prices before concluding on control (IFRS 10.B44).
Official guidance: IFRS issued standards
Lock-up periods, regulatory approvals, and lender consent clauses may prevent current exercisability even when the instrument is in the money.
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Official guidance: IFRS issued standards
Workpapers should reconcile legal ownership, contractual voting agreements, and diluted voting power on a substantive-rights basis for audit and disclosure support.
Prepare the voting-power schedule reconciling existing and potential rights before finalising the control memo and consolidation decision (IFRS 10.B47; IFRS 12.7).
Official guidance: IFRS issued standards
Select the outcome matching whether substantive, currently exercisable potential rights support consolidation or an alternative investment classification.
Consolidate from the date substantive potential rights confer control and disclose the significant judgements made (IFRS 10.20; IFRS 12.7). Apply IAS 28, IFRS 11, or IFRS 9 and document why the potential rights do not confer control (IFRS 10.7).
Official guidance: IFRS issued standards
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