what is equity accounting 
equity accounting is an accounting process for recording investments in associated companies or entities companies sometimes have ownership interests in other companies typically equity accounting also called the equity method is applied when an investor or holding entity owns 20 50 of the voting stock of the associate company the equity method of accounting is used only when an investor or investing company can exert a significant influence over the investee or owned company understanding equity accountingthe investee company will record a profit or loss for the period in its own income statement under the equity method an investing company will recognize it s share of the investee company profit or loss for the period in its own income statement the share it recognizes will be it s percentage ownership in the investee company the initial investment amount in the company is recorded as an asset on the investing company s balance sheet the investing company records its share of profit or loss in the income statement for the year at the same time the profit increases the investment value while losses would decrease the investment amount on the balance sheet the requirements for the equity method are set out in both u s gaap and the ifrs rules however there is specific guidance in u s gaap that does not exist in the ifrs 1equity accounting and investor influenceunder equity accounting the biggest consideration is the level of investor influence over the operating or financial decisions of the investee when there s a significant amount of money invested in a company by another company the investor can exert influence over the financial and operating decisions which ultimately impacts the financial results of the investee while no precise measure can gauge an exact level of influence several common indicators of operational and financial policies include 