Introduction to Investments, Equity Method & Joint Ventures
Why This Topic Matters
Companies often invest in other businesses to earn returns, gain strategic advantages, or obtain influence over operations. U.S. GAAP requires different accounting methods depending on the level of ownership and influence. For the CPA (USA) FAR exam, understanding investment classifications, the equity method, and joint ventures is essential.
- Investments may be debt or equity securities.
- Accounting depends on the investor's level of influence.
- The equity method applies when significant influence exists.
- Joint ventures involve shared control by multiple parties.
Note
Always determine the relationship between the investor and investee before selecting an accounting method.
Summary
The accounting method follows the level of influence—not simply the percentage of ownership.