Page 296 - F1 Integrated Workbook STUDENT 2018

Chapter 18

Investment in Associates and

Subsidiaries

2.1 Investment in associates

An investor who has significant influence over an entity would treat that investment
as an associate and would account for it in accordance with IAS 28 Investments in
Associates and Joint Ventures. IAS 28 states that there is a presumption that the
investor has significant influence over the entity where it holds, directly or indirectly,
20 per cent of the voting rights, unless it can be clearly demonstrated that this is not
the case.

The key concept in the definition is ‘significant influence’. IAS 28 Investments in
Associates and Joint Ventures, explains that significant influence is the power to
participate in the financial and operating policy decisions of the entity but is not
control over those policies. The existence of significant influence by an investor is
usually evidenced in one or more of the following ways:

 representation on the board of directors

 participation in policy-making processes

 material transactions between the investor and the entity

 interchange of managerial personnel

 provision of essential technical information

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