Potential ordinary share — Accounting glossary

Examples can include convertible debt, share options and warrants. IAS 33 considers potential ordinary shares when calculating diluted EPS only if their conversion or issue is dilutive under the standard’s tests. Relevant adjustments differ by instrument: for example, convertibles can require an after-tax numerator adjustment, while options use the specified treasury-share calculation. An ordinary share already issued is not merely potential.

Worked example

A company’s convertible bond could be exchanged for 10,000 ordinary shares. Those shares are potential ordinary shares; the entity tests their effect on diluted EPS, including any applicable adjustment to interest expense.

Common mistake

Including every potential share in diluted EPS regardless of whether it is anti-dilutive, or adding convertible shares without adjusting the numerator.

Where it appears in your exams

Qualification	Exam	Relationship	Period
ACCA	FR	Direct	September 2026–June 2027
ACCA	SBR	Direct	September 2026–June 2027