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ASC 323-10-50-1 through ASC 323-10-50-2 sets forth guidelines regarding disclosures that should be made in the financial statements of an investor when it accounts for investments under the equity method. The guidance states:

Excerpt from ASC 323-10-50-1

…references in this Subtopic to common stock refer to both common stock and in-substance common stock that give the investor the ability to exercise significant influence over the operating and financial polices of an investee even though the investor holds 50% or less of the common stock or in-substance common stock (or both common and in-substance common stock).

ASC 323-10-50-2

The significance of an investment to the investor’s financial position and results of operations shall be considered in evaluating the extent of disclosures of the financial position and results of operations of an investee. If the investor has more than one investment in common stock, disclosures wholly or partly on a combined basis may be appropriate.

The guidance also indicates that investments may be appropriately combined or grouped, either wholly or in part, for disclosure purposes. In addition, the nature and extent of disclosures may vary based on the significance of an investment to the investor.
If the investee is a variable interest entity (VIE), the investor is required to make the equity method investment disclosures in accordance with ASC 323-10-50, in addition to the required disclosures for VIEs in ASC 810-10-50. Refer to FSP 18 for additional information on the required disclosures for VIEs.
ASC 323-10-50-3 requires the following disclosures with regard to equity method investments:
  • Name of each investee and percentage of ownership of common stock by the investor

    Normally, the names of investees and the percentage owned would be included only for individually significant investees, for large holdings in publicly held investees, or where otherwise clearly informative to the users of financial statements. The percentage of ownership generally should be disclosed as a range where numerous individually immaterial investments in corporate joint ventures or other investees are accounted for under the equity method.
  • Accounting policies of the reporting entity with respect to investments in common stock

    The name of any significant investee in which the investor holds 20% or more of the outstanding voting stock (or an ownership interest of 3% to 5% for investments in limited partnerships, limited liability companies, trusts and similar entities), for which the investment is not accounted for under the equity method, should be disclosed. The reasons why the equity method is not considered appropriate should also be disclosed. Additionally, the name of any significant investee in which the investor holds less than 20% of the outstanding voting stock (or an ownership interest of 3% to 5% for investments in limited partnerships, limited liability companies, trusts and similar entities) in circumstances where such investment is accounted for under the equity method should be disclosed, along with the reasons why such treatment is considered appropriate.
  • Difference, if any, between the amount at which an investment is carried and the amount of underlying equity in net assets, and the accounting treatment for the basis difference

    Intra-entity (intercompany) income eliminations, as well as other basis differences such as goodwill, should be disclosed. Basis differences are discussed further in FSP and EM 3.3.1.
  • Market value of investments in common stock for which a quoted market value is available

    If specific circumstances lead the reporting entity to decide not to disclose this information (e.g., when the market for a stock is thin and quoted market value may not be representative of the investor’s holding), the reporting entity should disclose the reasons for reaching that determination.
  • Summarized information as to assets, liabilities, and results of operations of investees, either individually or grouped

    The disclosure of summarized financial information is also required under SEC rules. While the disclosure requirement for summarized financial information in ASC 323-10-50-3(c) is more general in nature, the SEC disclosure requirement provides specific guidance as to the financial captions that should be disclosed.

    S-X 4-08(g) sets forth disclosure requirements for annual periods, and S-X 10-01(b)(1) stipulates interim disclosure requirements. Refer to FSP 10.6.1 and FSP 10.6.2 for further discussion of SEC disclosure requirements on an annual and interim basis, respectively. If an investment accounted for by the equity method exceeds 20% based on the investment test or income test as defined in S-X 1-02(w), separate financial statements—not just summarized financial information—are required in the investor’s Form 10-K in accordance with S-X 3-09.
  • Material effects of possible conversions, exercises, or contingent issuances of investee securities that would significantly affect the investor’s share of reported earnings or losses of the investee

    Investee common stock equivalents and dilutive securities are taken into account in computing the investor’s earnings per share (see ASC 323-10-50-3(d)). Disclosure of the potential effects should normally be made only if the conversion, exercise, or issuance would significantly change the investor’s share of investee net assets or reported income. Otherwise, disclosures should be limited to the nature of the contingency and the effect on income for the most recent period and financial position at the end of the period. Refer to FSP 7 for further discussion of EPS considerations.
Equity method investments may also generate temporary differences for tax purposes that must be disclosed under ASC 740. Refer to FSP 16 for required disclosures related to deferred taxes. In addition to those disclosures, ASC 323-740-S99-1, Taxes of Investee Company, indicates that if an equity method investee's effective tax rate differs by more than 5% from the statutory Federal income tax rate, the investor is required to disclose the tax components of the reconciliation if such information is available and material to the investor's balance sheet or income statement.

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