What Is an Associate in Group Accounts?
An associate is an entity over which an investor has significant influence — usually 20% to 50% of the voting rights. It's accounted for using the equity method. Here's how it works.
An associate is an entity over which an investor has significant influence, but not control or joint control. Significant influence is the power to participate in the financial and operating policy decisions of the investee — and it's usually presumed when the investor holds 20% to 50% of the voting rights. Associates are accounted for under IAS 28 using the equity method.
What is significant influence?
Beyond the 20%–50% guideline, significant influence can be evidenced by board representation, participation in policy decisions, material transactions, or the interchange of management. It's about influence, not control — a subsidiary is controlled and fully consolidated, whereas an associate is only significantly influenced.
The equity method
Under the equity method, the investment starts at cost and is then adjusted each year:
- Add the investor's share of the associate's post-acquisition profits (or deduct its share of losses).
- Deduct dividends received from the associate.
- Adjust for the investor's share of other changes in the associate's equity.
In the consolidated statement of profit or loss, a single line shows the group's share of the associate's profit. Unlike a subsidiary, you do not add the associate's assets, liabilities, income and expenses line by line.
Associates in ACCA FR and SBR
Group questions frequently include an associate, and the marks come from correctly applying the equity method — especially the post-acquisition share of profit and the carrying amount of the investment. Practising full group questions and marking them against the official ACCA scheme with The 50% Club shows you exactly where your equity-method workings slip.