Lessons
- CFA Level 2: Financial Reporting Part 2 – Introduction
- Intercorporate Investments Accounting - Ownership Categories
- Minority Passive Investments – Accounting Classes
- Minority Active Investments and the Equity Method for Financial Reporting
- Joint Venture Investments
- Controlling Interest Investments: Accounting for Business Combinations
- Purchase Method of Accounting for Controlling Interest Investments or Acquisitions
- Pooling of Interests Method to Account for Controlling Interest Investments
- Purchase Method vs. Pooling of Interest Method
- Acquisition Method to Account for Controlling Interest Investments
- GAAP Purchase Method, IFRS Purchase Method, and GAAP Acquisition Method Accounting
- Variable Interest Entities (VIEs) and Special Purpose Entities (SPEs)
- Defined Benefits Plans vs. Defined Contribution Plans
- Measuring the Defined Benefit Obligation
- Pension Expense (both GAAP & IFRS) for the Income Statement
- Defined Benefit Plans & the Company Balance Sheet
- The Role of Actuarial Assumptions in DB Plan Accounting
- Economic Pension Expense
- Pensions and the Statement of Cash Flows
- Accounting for Stock (or Share) Based Compensation
- Financial Statement Consolidation of Multinational Operations
- Consolidation: Presentation Currency vs. Functional Currency vs. Local Currency
- Foreign Currency Translation
- Temporal Method for Translation of Foreign Statements
- Current Rate Method for Translation of Foreign Statements
- Consolidating Financial Statements: Determining the Functional Currency
- Translation Methods and Financial Statement Effects
- Accounting for Subsidiaries in Hyperinflationary Economies
- CFA Level 2: Financial Reporting 2 - Recommendations
- MBS Weighted Average Life
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 |
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