What to consider as an equity method investee has been saved
What to consider as an equity method investee
On the Radar: Equity method investments & SEC reporting
The financial statements required by SEC rules related to equity method investments can significantly affect a registrant’s financial reporting. This edition of On the Radar provides equity method investees with comprehensive guidance on SEC equity method investment reporting considerations, as well as interpretations and examples.
Identification of operating segments
SEC registrants may have equity method investments, including those accounted for under the fair value option or hypothetical liquidation basis. In their filings with the SEC, they are required to provide financial information about any significant equity method investees. Therefore, such registrants must consider whether to provide financial information about such investee in any report filed with the SEC that includes their own financial statements.
Level of significance
The amount of information a registrant must present about an investee depends on the level of the investee’s significance. To determine the significance level, a registrant performs the applicable tests (as indicated below) for each equity method investee individually and, in certain cases, for all such investees in the aggregate:
- The investment test
- The asset test
- The income test
The test that results in the highest significance level will be used to establish the financial reporting requirements. A registrant may use the following table to determine which information must be presented:
The SEC staff may issue comments related to how a registrant complied with SEC rules and ask the registrant to provide the calculations it used in the significance tests.
Continue your SEC reporting considerations for equity method investees learning
Deloitte’s Roadmap SEC Reporting Considerations for Equity Method Investees provides comprehensive guidance on this topic. For guidance on the U.S. GAAP requirements related to equity method investees, see Deloitte’s Roadmap Equity Method Investments and Joint Ventures.