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Chapter 5 — Reporting Requirements When There Is a Change in Accounting for the Equity Method Investment

5.2 Change From Consolidation to Equity Method

5.2 Change From Consolidation to Equity Method

Although Rule 3-09(b) requires a registrant to file financial statements of significant equity method investees for the same periods as the registrant’s audited financial statements, paragraph 2405.4 of the FRM notes that “the investee’s separate annual financial statements should only depict the period of the fiscal year in which it was accounted for by the equity method.” Therefore, in cases in which a formerly consolidated subsidiary no longer meets the criteria for consolidation and the registrant changes to the equity method of accounting, the registrant is not required to provide the investee’s financial statements for the prior periods in which it was consolidated. This is because the financial statements of the equity method investee and registrant were consolidated before the change to the equity method of accounting.