Summary of Interpretation No. 35

Criteria for Applying the Equity Method of Accounting for Investments in Common Stock—an interpretation of APB Opinion No. 18

Summary

This Interpretation clarifies the criteria for applying the equity method of accounting for investments of 50 percent or less of the voting stock of an investee enterprise (other than a corporate joint venture). APB Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock, states that use of the equity method of accounting for the investment is required if the investor has the ability to exercise significant influence over operating and financial policies of the investee. Opinion 18 includes presumptions, based on the investor's percentage ownership, as to whether the investor has that ability, but those presumptions can be overcome by evidence to the contrary and do not override the need for judgment. If there is an indication that an investor owning 20 percent or more of an investee's voting stock is unable to exercise significant influence over the investee's operating and financial policies, all the facts and circumstances related to the investment shall be evaluated to determine whether the presumption of ability to exercise significant influence over the investee is overcome.