Intercorporate Investments Accounting - Ownership Categories
Companies commonly make equity or debt investments in other companies. Ownership can be minority (less than 50%) or majority (greater than 50%) and the degree of operational influence can be passive or active. Naturally, these differences lead to differences in accounting treatments for which the well-trained financial analyst must be prepared to interpret.
The following table shows the categories of ownership recognized by U.S. GAAP and IFRS for the purposes of public financial reporting.
| INVESTMENT CATEGORY | LEVEL OF INVESTOR INFLUENCE | INVESTOR OWNERSHIP LEVEL | ACCOUNTING METHOD |
|---|---|---|---|
| Minority Passive | Not material. | Less than 20% | Four classes of accounting treatment: |
- held to maturity (HTM) 2) available for sale (AFS) 3) held for trading (HFT) 4) designated fair value instruments | | Minority Active | Significant. | 20% - 50% | Equity Method | | Joint Venture | Joint control. | Joint venture | US: Equity Method IFRS: Equity Method (proportionate consolidation previously allowed) | | Controlling Interest | Control. | More than 50% | Consolidation |