Summary (Last updated: 3/31/2009)

2400.1 S-X 3-09 and S-X 4-08(g) use the terms "subsidiaries not consolidated" and "50% or less-owned persons." As discussed in Section 2405.1, since the issuance of S-X 3-09 and S-X4-08(g), U.S. GAAP has been revised to require consolidation by a parent of all of its subsidiaries. Therefore, the remaining discussion in Section 2400 relates to "50% or less-owned persons," which the staff interprets to refer to an investment accounted for using the equity method (even if voting ownership exceeds 50%).

2400.2 S-X 3-09 requires separate annual financial statements of equity method investees if certain significance thresholds are met for any of the registrant's fiscal years required to be presented in the filing using the investment and income significance tests, which are two of the three tests described in S-X 1-02(w). As described in Section 2410, the significance thresholds in S-X 3-09 differ from those stated in S-X 1-02(w). S-X 3-09 does not require separate interim financial statements. Instead, S-X 10-01(b)(1) requires certain summarized interim statement of comprehensive income information of the investee if it is significant. S-X 3-09 does not apply to smaller reporting companies. (Last updated: 6/30/2010)

2400.3 S-X 4-08(g) applies to annual financial statements and requires summarized annual balance sheet and statement of comprehensive income information of equity method investees if certain significance thresholds are met using all three tests (the asset, investment, and income significance tests) described in S-X 1-02(w). As described in Section 2420, the significance thresholds in S-X 4-08(g) are the same as those stated in S-X 1-02(w) (i.e., 10%). We look to S-X 8-03 by analogy (see Note 1 to Section 2420.9) for the requirements for smaller reporting companies to provide summarized financial data of equity method investees in annual financial statements. The S-X 8-03 significance threshold is 20%. The summarized financial data requirements for interim financial statements differ in some respects from those for annual financial statements. See the overview at Section 2420.1.

2400.4 A registrant that accounts for an equity method investment using fair value in accordance with "Financial Instruments", ASC 825 must disclose the information required by ASC 323-10-50-3c (i.e., summarized financial information or separate financial statements). As described more fully in Section 2435, the staff believes that the significance tests in S-X 3-09 and S-X 4-08(g), with the modifications described in Section 2435, should be used by analogy as presumptive thresholds for when the disclosures in ASC 323-10-50-3c should be provided for an equity method investment accounted for using fair value in accordance with ASC 825.

2400.5 Financial statements required for the equity method investee are generally the same as those that would be required if the equity method investee were a registrant as described in Topic 1, except as noted in Section 2405.4, which relates to the effect of commencing or ceasing use of the equity method, and Section 10220.5, which relates to registrants that are EGCs. Refer to Section 2405.11 regarding age of financial statements and Section 2405.3 for audit requirements.