FRF7
Syllabus A. THE CONCEPTUAL AND REGULATORY FRAMEWORK A4. The Concept Of A Group

A4j. Define an associate 11 / 11

Syllabus A4j)

Define an associate and explain the principles and reasoning for the use of equity accounting.

Associates

An associate is an entity over which the group has significant influence, but not control.

Significant influence

Significant influence is normally said to occur when you own between 20-50% of the shares in a company but is usually evidenced in one or more of the following ways:

  • representation on the board of directors

  • participation in the policy-making process

  • material transactions between the investor and the investee

  • interchange of managerial personnel; or

  • provision of essential technical information

Accounting treatment

  • An associate is not a group company and so is not consolidated.

  • Instead it is accounted for using the equity method.

  • Intercompany balances are not cancelled.