Investments ASPE 3051 IAS 28

Question 1

What is the definition of significant influence and
what are indicators of significant influence?

Answer 1

ASPE 3051 and IAS 28

• Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control of those policies
• Ownership of 20% or more of voting shares is assumed to give significant influence unless it can be proven otherwise
• Other Indicators:
  ‒ representation on the board of directors
  ‒ participation in policy-making processes
  ‒ material transactions between the entity and its investee
  ‒ interchange of managerial personnel
  ‒ provision of essential technical information such as patents, trademarks, etc.

Question 2

How are significant influence investments
accounted for?

Answer 2

ASPE 3051
* Choice of cost or equity
method
‒ unless investee shares are actively traded, in which case the choices are fair value or equity method

IAS 28
* Equity method

Question 3

How does the equity method work (high
level)?

Answer 3

ASPE 3051
* Investor recognizes their % share of investee income/loss as investment income

• Unrealized intercompany gains and losses are
  eliminated
• The investment account of the investor
  reflects:
  Cost of the investment adjusted for the
  cumulative:

Investment income or loss

Proportionate share of dividends paid by the investee

Amortization of fair value increments
(acquisition differential)

Proportionate share of changes in an accounting
policy, correction of an errors and capital
transactions*

IAS 28
* Same plus:
‒ Investor picks up
their share of
comprehensive
income and
presents it
separately (OCI
does not exist under
ASPE)