Financial Accounting · Associates

Associates: Definition and Significant Influence under IAS 28

Updated 11 October 2026 · Fact-checked

An associate is an entity over which an investor has significant influence but not control. Significant influence is the power to take part in financial and operating policy decisions. Holding 20% or more of the voting power presumes significant influence, but this can be rebutted. Above 50% usually means a subsidiary instead.

Understand Associates: Definition and Significant Influence

Start with the three ways you can hold shares in another company. You can hold a few shares as a simple investment. You can hold enough to steer the company's policies without running it. Or you can hold enough to control it. Each case has a different accounting treatment.

An associate is an entity over which the investor has significant influence. It is not a subsidiary and not a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the entity. It is not control and not joint control of those policies.

IAS 28 gives a simple presumption. If the investor holds, directly or indirectly, 20% or more of the voting power, it is presumed to have significant influence. If it holds less than 20%, it is presumed not to have it. Both presumptions can be rebutted if clear evidence shows otherwise. So 20% is a starting point, not a hard rule.

IAS 28 lists signs of significant influence. These include representation on the board of directors, taking part in policy-making, material transactions between investor and investee, exchange of managerial staff, and providing essential technical information. Potential voting rights that can currently be exercised are also considered.

The key contrast is with a subsidiary. A subsidiary is controlled by the parent (IFRS 10), usually through more than 50% of votes, and is fully consolidated line by line. An associate is not consolidated line by line. It is accounted for using the equity method, which you study in the related topics. A simple investment with no significant influence is an investment under IFRS 9, normally held at fair value.

Key formulas to remember

Significant influence presumption: Voting power ≥ 20% → significant influence presumed; Presumption only. It can be rebutted with clear evidence.
No influence presumption: Voting power < 20% → no significant influence presumed; Can be rebutted, for example by board representation.
Control indicator: Voting power > 50% → control usually exists (subsidiary); Control under IFRS 10 depends on power, exposure to returns and ability to use power. Over 50% is the usual sign, not the full test.
Classification summary: Control → subsidiary (consolidate). Significant influence → associate (equity method). Neither → IFRS 9 investment.; Always decide the classification before choosing the accounting.
Definition of significant influence: Power to participate in financial and operating policy decisions, without control or joint control; Learn this wording for multiple choice questions.

How to solve Associates: Definition and Significant Influence questions

Use this method for any question asking you to classify an investment or identify an associate.

1Find the percentage of voting power held, directly and indirectly. Use voting rights, not necessarily share of profit.
2Test for control first. Look for more than 50% of votes, or other evidence of power over the entity. If control exists, it is a subsidiary.
3If there is no control, check for significant influence. Is the holding 20% or more, or are there other signs such as board seats?
4Read the scenario for evidence that overrides the percentage. Examples are a seat on the board below 20%, or a 25% holder blocked from any policy role.
5Classify: subsidiary, associate or IFRS 9 investment.
6State the accounting treatment that follows: consolidation, equity method or fair value.
7Check any joint arrangement wording. Joint control is not an associate.

Quickest way: Percentage ladder with an influence check

When to use it: Use in Section A multiple choice questions where you have under a minute per question.

Underline the voting percentage in the question.
Place it on the ladder: under 20%, 20% to 50%, over 50%.
Scan for one override clue: board seat, policy participation, or a statement that influence is absent.
Pick the answer that matches the ladder, adjusted for the override clue.
Eliminate options that say associates are consolidated line by line or that 20% is a compulsory test.

Common mistakes in Associates: Definition and Significant Influence

Treating 20% as an absolute rule that always makes an associate.
Students memorise the number and ignore the word presumed.
Fix: Say 'presumed' every time. Check the scenario for evidence that rebuts the presumption.
Saying a holding below 20% can never be an associate.
The presumption is learned as a hard cut-off.
Fix: A holding below 20% with board representation and policy involvement can still give significant influence.
Calling a 30% holder a subsidiary because it is a large stake.
Confusing influence with control.
Fix: Control usually needs more than 50% of votes or other evidence of power. 30% with no other control evidence is an associate.
Consolidating an associate line by line.
Students mix up subsidiary and associate treatment.
Fix: Associates use the equity method: one line in the statement of financial position and one for share of profit.
Using share of profit rights instead of voting power for the test.
Questions sometimes mention dividends or profit shares.
Fix: The presumption in IAS 28 is based on voting power. Use that figure unless told otherwise.

Worked examples

Example 1

Alpha holds 30% of the voting shares of Beta. Alpha has two of the seven seats on Beta's board and helps set Beta's dividend policy. Alpha does not control Beta. How should Beta be classified in Alpha's financial statements?

Show the solution

Voting power is 30%, which is below 50%, and the question says there is no control. So Beta is not a subsidiary.
30% is at least 20%, so significant influence is presumed.
The evidence supports this: board representation and participation in dividend policy.
Therefore Beta is an associate and is accounted for using the equity method.

Answer: Beta is an associate of Alpha, accounted for using the equity method.

Example 2

Gamma holds 15% of the voting shares of Delta. Gamma has no board seat and takes no part in policy decisions. Delta's other shares are held by many small investors. Classify Delta and state the accounting treatment.

Show the solution

15% is below 20%, so no significant influence is presumed.
Check for rebutting evidence: no board seat and no policy participation. Nothing overrides the presumption.
Gamma has no control, as 15% is far below 50% and there is no other power.
So Delta is a simple investment, accounted for under IFRS 9, usually at fair value.

Answer: Delta is not an associate. It is an investment accounted for under IFRS 9, normally at fair value.

Exam tips

Learn the exact IAS 28 definition of significant influence. Multiple choice options often change one word.
Use the words 'presumed' and 'rebutted'. Options that say '20% always means associate' are traps.
Rule out subsidiary first. Control comes before significant influence in the classification order.
Watch for clues such as board seats, technical help or interchange of managers. They point to influence below 20%.
Remember the treatment: associates use the equity method, not line-by-line consolidation.

Practice questions from Associates

Associates: Definition and Significant Influence in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Associates: Definition and Significant Influence: frequently asked questions

What is an associate in ACCA Financial Accounting?

An associate is an entity in which the investor has significant influence but not control or joint control. It is accounted for under IAS 28 using the equity method. A holding of 20% or more of the votes presumes significant influence.

Is the 20% rule in IAS 28 fixed?

No. It is a presumption. A holding of 20% or more is presumed to give significant influence, and below 20% is presumed not to. Clear evidence can rebut either presumption.

What is the difference between a subsidiary and an associate?

A subsidiary is controlled by the parent, usually with more than 50% of votes, and is consolidated line by line. An associate is only significantly influenced and is shown using the equity method. The investor can steer an associate's policies but cannot dictate them.

Which standard covers associates?

IAS 28 Investments in Associates and Joint Ventures covers associates. Control and consolidation of subsidiaries are in IFRS 10. Simple investments without influence fall under IFRS 9.