What is Significant influence?
In short
Significant influence is the ability to influence an investee's operating and financial policies without controlling it. It is presumed when an investor holds 20% to 50% of the voting stock, and leads to the equity method.
Key takeaways
- Indicators include board representation, taking part in policy-making, material intercompany transactions and exchanging managers.
- The 20% presumption can be overcome, for example if the investee opposes the investor's influence.
- An investor can elect the fair value option instead of the equity method.
Where it's tested
FAR: Investments (Debt & Equity Securities) — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
Following ASU 2016-01, how are most equity securities without significant influence measured?