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An Analysis of the International Development of the Equity Method

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  • Christopher Nobes

Abstract

The equity method was used as an early form of consolidation for all subsidiaries in the U.K. and for certain subsidiaries in the U.S. Another use of the method in some countries, even in the era of full consolidation, has been in the financial statements of investor legal entities. This seems to result from using the equity method as a technique for valuation or as an aid in the preparation of consolidated statements rather than as a form of consolidation. The method has also been used as a substitute for consolidation for excluded subsidiaries or for controlled companies not included in the definition of subsidiaries. Later, the equity method was introduced for joint ventures and then for other forms of ‘strategic alliance’, but the latter bring definitional problems, which have led to a consensus around an arbitrary threshold of 20 per cent of voting rights. This article traces these developments across time and space, and criticizes several of the past and present applications of the equity method. There is also an examination of the development of the terms ‘equity method’ and ‘associated company’.

Suggested Citation

  • Christopher Nobes, 2002. "An Analysis of the International Development of the Equity Method," Abacus, Accounting Foundation, University of Sydney, vol. 38(1), pages 16-45, February.
    • Handle: RePEc:bla:abacus:v:38:y:2002:i:1:p:16-45
    DOI: 10.1111/1467-6281.00096
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    Cited by:

    1. Laura Girella & Mario Abela & Elisa Rita Ferrari, 2018. "Conceptual shifts in accounting: Transplanting the notion of boundary from financial to non-financial reporting," FINANCIAL REPORTING, FrancoAngeli Editore, vol. 2018(1), pages 133-175.
    2. Christopher Nobes, 2008. "‘57 Varieties of Serious Defect in IFRS?’," Australian Accounting Review, CPA Australia, vol. 18(4), pages 283-286, December.
    3. David Alexander & Pascale Delvaille & Frédéric Demerens & Anne Le Manh-Béna & Chiara Saccon, 2012. "La consolidation des co-entreprises en IFRS : étude de l'impact du changement de méthodes pour les sociétés européennes," Post-Print hal-00935843, HAL.
    4. Frédéric Pourtier & Véronique Darmendrail, 2018. "La Mise En Equivalence (MEE) dans les comptes sociaux : analyse empirique du cas français et propositions normatives," Post-Print hal-01907946, HAL.
    5. Badenhorst, Wessel M. & Brümmer, Leon M. & de Wet, Johannes H.vH., 2015. "The value-relevance of disclosed summarised financial information of listed associates," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 24(C), pages 1-12.
    6. Michael E. Bradbury, 2018. "Commentary on the Adjustments Required for Intercompany Transactions when Equity Accounting Under IAS 28," Australian Accounting Review, CPA Australia, vol. 28(1), pages 140-147, March.
    7. Wessel M. Badenhorst & Leon M. Brümmer & Johannes H.vH. de Wet, 2016. "Retracted: The Value‐relevance of Equity Accounted Carrying Amounts and Disclosed Fair Values of Listed Associates," Australian Accounting Review, CPA Australia, vol. 26(2), pages 177-189, June.
    8. Michael E. Bradbury & Laura Mehnaz & Tom Scott, 2022. "The use and usefulness of equity accounting," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(S1), pages 1957-1981, April.
    9. Wolf, Robin Paul, 2018. "IFRS 11 und 12 - Fluch oder Segen für die Finanzberichterstattung der Kooperationspartner? Erste Ergebnisse aus der Analyse der Eigenkapitalkostenentwicklung der Unternehmen des deutschen Prime Standa," Arbeitspapiere 179, University of Münster, Institute for Cooperatives.

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