Determining significant influence for equity method investees
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Determining significant influence for equity method investees

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Based on recent inquiries received by the CPEA related to equity-method investments, we have prepared this report covering how an investor determines whether it has the ability to exercise significant influence over the operating and financial policies of an investee and, therefore, apply the equity method of accounting. Too often, practitioners assume that significant influence automatically exists when an investor holds an investment of 20% or more of the voting stock of an investee. They fail to consider other factors that may indicate that significant influence does not exist. Similarly, practitioners automatically may assume that significant influence does not exist when an investor holds an investment of less than 20% of the voting stock on an investee. They fail to consider other factors that may indicate that significant influence does exist.

Practitioners are reminded to evaluate their client’s equity method investments and consider if the client truly has the ability to exercise significant influence, beyond just a determination of whether the investor holds an investment of more or less than 20% of the voting stock of the investee. This report provides various sources of guidance to consider in making that evaluation.

Download the CPEA report: Determining “significant influence” for equity method investees - It’s not just owning 20% of the stock

File name: CPEA September 2022 report – Equity method accounting.pdf

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