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An investor with an existing interest in an investee may acquire an additional interest, or dispose of part of its interest, resulting in a change to its ownership interest. A change in ownership interest may cause an investment:
  • not previously accounted for under the equity method to qualify for the equity method for the first time,
  • accounted for using the equity method, to be adjusted to reflect a gain or loss in interest, while continuing to be accounted for under the equity method, or
  • an investment to cease qualifying for the equity method of accounting and become subject to other accounting guidance.

When an investee undertakes a capital transaction, such as when issuing or purchasing its shares, the investor’s ownership interest may change, even though the investor did not directly acquire or sell an additional interest in the investee. Like investor transactions, investee transactions can have an accounting impact for the investor.
Finally, even when there is no change in the investor’s ownership interest, amendments to governing documents or other terms of the arrangement may impact the level of influence or control that an investor has, which can also impact the investor’s accounting for its investment.
The reassessment of whether an investor has significant influence or control over the investee is an ongoing evaluation. EM 2 addresses whether an investor has significant influence and CG 1 addresses whether an investor has control.
See FSP 10.4.3 for information on the presentation of an investment that qualifies for the equity method of accounting.
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