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The determination of significant influence is not limited to the evaluation of voting interests and the level of ownership interest an investor holds. An investor must consider all relationships and interests (voting and nonvoting) in an investee, including any means through which the investor might influence the operating and financial policies of an investee. Examples include board representation, veto rights, or participating rights conveyed by a security other than voting common stock. An investor should also consider the capitalization structure of the investee, how significant its investment is to the investee’s capitalization, and the rights and preferences of other investors.
ASC 323-10-15-6 provides a list of indicators that investors should consider when evaluating whether or not it has the ability to exercise significant influence over the operating and financial policies of an investee.

ASC 323-10-15-6

Ability to exercise significant influence over operating and financial policies of an investee may be indicated in several ways, including the following:
  1. Representation on the board of directors
  2. Participation in policy-making processes
  3. Material intra-entity transactions
  4. Interchange of managerial personnel
  5. Technological dependency
  6. Extent of ownership by an investor in relation to the concentration of other shareholdings (but substantial or majority ownership of the voting stock of an investee by another investor does not necessarily preclude the ability to exercise significant influence by the investor).

The list of factors in ASC 323-10-15-6 is not all-inclusive, and the determination of whether other factors provide an investor with the ability to exercise significant influence over the financial and operating policies of an investee requires significant judgment and consideration of all relevant facts and circumstances.

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