5.5 Loss of Significant Influence
A registrant that changes its ownership of a significant equity
method investee and no longer has significant influence is required to account for
the investment by using the fair value method under ASC 321. Such a registrant
should present the financial statements of the equity method investee for the period
in which the equity method was applied. Rule 3-09 does not apply to periods in
which the fair value method under ASC 321 (including the practicability exception to
fair value under ASC 321-10-35-2) is used to account for an investment (see
Section 5.3).
However, Rules 3-09 and 4-08(g) do apply to those investments that are eligible for the
equity method of accounting under ASC 323 and for which the fair value option has
been elected.
Example 5-4
Registrant A owns 40 percent of Company B and uses the equity
method to account for its investment. Both A and B have
calendar year-ends. On July 1, 20X2, A loses significant
influence and begins to account for the investment under ASC
321. Company B was greater than 20 percent significant to A
when tested in 20X1 and 20X0 and for the period from January
1, 20X2, through June 30, 20X2.
In its Form 10-K for the fiscal year ended December 31, 20X2,
A should file the audited financial statements of B (1) as
of June 30, 20X2, and December 31, 20X1, and (2) for the
6-month period ended June 30, 20X2, and the years ended
December 31, 20X1 and 20X0.