Ifrs 10 and 3
Friday, 06 April 2018 05:58 PM
New Section 2 Page 1
New Section 2 Page 2
Example 3
The investee has annual shareholder meetings at which decision to direct the relevant activities
are made. The next scheduled shareholders meeting is in eight months. However, shareholders
that individually or collectively hold at least 5 percent of the voting rights can call a special
meeting to change the existing policies over the relevant activities, but a requirement to give
notice to the other shareholders means that such a meeting cannot be held for at least 30 days.
Policies over the relevant activities can be changed only at special or scheduled shareholders
meetings. This includes the approval of material sales of assets as well as the making or
disposing of significant investments.
The above fact pattern applies to examples 3A-3D described below. Each example is considered
in isolation.
Example 3A
An investor holds a majority of the voting rights in the investee. The investor’s voting rights are
substantive because the investor is able to make decision about the direction of the relevant
activities when they need to made. The fact that it takes 30 days before the investor can
exercise its voting rights does not stop the investor from having the current ability to direct the
relevant activities from the moment the investor acquires the shareholding.
Example 3B
An investor is party to a forward contract to acquire the majority of shares in the investee. The
forward contract’s settlement date is in 25 days. The existing share holders are unable to
change the existing policies over the relevant activities because a special meeting cannot be
held for at least 30 days at which point the forward contract will have settled. Thus, the
investor has rights that are essentially equivalent to the majority shareholder in example 3A
above (i.e. the investor holding the forward contract can make decisions about the direction of
the relevant activities when they need to be made). The investor’s forward contract is a
substantive right that gives the investor the current ability to direct the relevant activities been
before the forward contract is settled.
EXAMPLE 3C
An investor holds substantive option to acquire the majority of shares in the investee that is
exercisable in 25 days and is deeply in the money. The same conclusion would be reached as in
example 3B.
EXAMPLE 3D
An investor is party to a forward contract to acquire the majority of shares in the investee, with
no other related rights over the investee. The forward contract’s settlement date is in six
months. In contrast to the examples above, the investor does not have the current ability to
direct the relevant activities. The existing shareholders have the current ability to direct the
relevant activities because they can change the existing policies over the relevant activities
before the forward contract is settled.
New Section 2 Page 3
New Section 2 Page 4
New Section 2 Page 5
New Section 2 Page 6
New Section 2 Page 7
New Section 2 Page 8
New Section 2 Page 9
