Skip to content

Strategic Business Reporting (International) · Associates and joint arrangements

Associates and Significant Influence under IAS 28

Updated 11 October 2026 · Fact-checked

An associate is an entity over which the investor has significant influence: the power to take part in financial and operating policy decisions, without control or joint control. Holding 20% or more of the votes presumes significant influence. You judge it from all facts, then apply the equity method unless an exemption applies.

Understand Associates and Significant Influence (IAS 28)

Start with the three levels of involvement in another entity. Control means you can direct its relevant activities and earn variable returns from it. That makes it a subsidiary under IFRS 10, and you consolidate it line by line. Joint control is shared control under a contractual agreement. That is a joint arrangement under IFRS 11. Significant influence sits below both. You can take part in policy decisions, but you cannot decide them alone.

IAS 28 defines an associate as an entity over which the investor has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee. It is not control or joint control of those policies. The accounting follows from this. You do not own the assets and liabilities, so you do not add them in. You show one line for the investment, using the equity method.

IAS 28 gives a rebuttable presumption based on voting power. If you hold, directly or through subsidiaries, 20% or more of the votes, you are presumed to have significant influence. Below 20%, you are presumed not to, unless you can clearly show it. These are presumptions, not rules. A 25% holder with no real say can rebut the presumption. A 15% holder with a board seat and key powers can have significant influence.

IAS 28 lists indicators of significant influence:

  • Representation on the board or equivalent governing body.
  • Participation in policy-making, including decisions on dividends.
  • Material transactions between investor and investee.
  • Interchange of managerial personnel.
  • Provision of essential technical information.

Also consider potential voting rights, such as share options or convertible instruments, that are currently exercisable or convertible. These count when you assess influence. You do not use them to work out the share of profit you record. That uses current ownership interests.

Next is scope. IAS 28 applies to all investments in associates and joint ventures, unless an exemption applies. The equity method need not be used where the investment is classified as held for sale under IFRS 5. It is also not required for a parent that is exempt from preparing consolidated statements under IFRS 10. A further exemption applies to certain entities, such as venture capital organisations and mutual funds. They may elect to measure the investment at fair value through profit or loss under IFRS 9. Investments outside IAS 28 are usually accounted for under IFRS 9. In the exam, always say which standard applies and why.

Key rules to remember

Presumption of significant influence
Voting power ≥ 20% → significant influence presumed; < 20% → not presumed
Both directions are rebuttable. Count votes held directly and through subsidiaries, and consider currently exercisable potential voting rights.
Control vs influence vs joint control
Control → IFRS 10 (subsidiary); Joint control → IFRS 11; Significant influence → IAS 28 (associate)
Test control first. Only if it fails do you test for joint control, then significant influence.
Equity method on initial recognition
Investment in associate at cost = consideration paid (plus directly attributable costs)
Later it is adjusted for the investor's share of the associate's post-acquisition profit or loss and OCI, and reduced by dividends received.
Exemptions from the equity method
Held for sale (IFRS 5) | Parent exempt from consolidation | Venture capital or similar entity electing fair value through profit or loss
Where the exemption applies, use IFRS 5 or IFRS 9 as appropriate. Do not leave the investment unaccounted for.

How to solve Associates and Significant Influence (IAS 28) questions

Use this order for any question asking whether an investment is an associate and how to account for it.

  1. 1Identify the facts: percentage of votes held, directly and indirectly, and any other rights such as options, board seats or veto powers.
  2. 2Test for control under IFRS 10 first. If the investor has power, exposure to variable returns and the link between them, it is a subsidiary. Stop there.
  3. 3If there is no control, check whether a contractual agreement gives shared control. If so, it is a joint arrangement under IFRS 11.
  4. 4Otherwise, apply the 20% presumption. Then weigh the indicators: board seats, policy participation, material transactions, managers exchanged, technical information.
  5. 5Decide whether the presumption is rebutted either way. Give reasons from the scenario, not just the percentage.
  6. 6Check scope and exemptions: held for sale, exempt parent, or venture capital or fund election.
  7. 7Conclude on the accounting: equity method under IAS 28, IFRS 5, or IFRS 9 for a simple investment. State the effect on the financial statements.

Quickest way: Control, then 20%, then indicators

When to use it: Use this when the question gives a short scenario and asks you to classify an investment in a few lines.

  1. Write the percentage and who holds it.
  2. Ask: can the investor direct the relevant activities alone? If yes, subsidiary.
  3. If no, ask: 20% or more? If yes, presume associate. If no, presume IFRS 9 investment.
  4. Scan the scenario for one or two facts that overturn the presumption, such as a board seat or a blocking agreement.
  5. State the standard and the accounting in one line, then note any exemption.

Common mistakes in Associates and Significant Influence (IAS 28)

  • Treating 20% or more as automatically an associate.

    Students memorise the number and forget it is only a presumption.

    Fix: Say 'presumed' and test the facts. If the investor cannot take part in policy decisions, explain why the presumption is rebutted.

  • Treating a holding below 20% as never an associate.

    Same shortcut applied in reverse.

    Fix: Look for board representation, material transactions or technical dependence. These can show significant influence even below 20%.

  • Ignoring control when the holding is above 50% or when other rights exist.

    Students jump straight to the associate test.

    Fix: Always test IFRS 10 control first. De facto control can exist below 50% with dominant voting power or board control.

  • Consolidating an associate line by line.

    Confusing the treatment for subsidiaries with the one for associates.

    Fix: An associate is one line in the statement of financial position and one line for the share of profit. No full consolidation of assets, liabilities, income or expenses.

  • Forgetting potential voting rights, or using them to calculate the profit share.

    The rules for assessing influence and for measuring the share are separate.

    Fix: Include currently exercisable rights when judging influence. Use present ownership interests to calculate the share of profit.

  • Saying no accounting is needed when an exemption applies.

    Students read 'exempt' as 'ignore'.

    Fix: State the replacement standard: IFRS 5 for held for sale, or IFRS 9 at fair value for a qualifying venture capital entity.

Worked examples

Example 1

Alpha acquired 30% of the voting shares of Beta for $5m. Alpha has no board seat, Beta's other shareholder holds 70% and makes all policy decisions, and Alpha has no say in dividends or transactions with Beta. Advise whether Beta is an associate of Alpha.

Show the solution
  1. Control test: Alpha holds 30% and the other shareholder holds 70% and decides policy. Alpha has no power over Beta's relevant activities. Beta is not a subsidiary.
  2. Joint control: there is no contractual sharing of control. It is not a joint arrangement.
  3. Presumption: 30% is at least 20%, so significant influence is presumed.
  4. Indicators: no board representation, no participation in policy-making including dividends, no material transactions, no managers exchanged and no technical information provided.
  5. These facts show Alpha cannot participate in financial and operating policy decisions. The presumption is rebutted.

Answer: Beta is not an associate despite the 30% holding, because Alpha has no ability to take part in policy decisions. IAS 28 does not apply. Alpha accounts for the investment as a financial asset under IFRS 9, normally at fair value.

Example 2

Gamma holds 15% of Delta. Gamma appoints two of the seven directors, supplies Delta's key technology on which Delta depends, and its managers regularly join Delta's management team. Gamma's group is not exempt from preparing consolidated statements, and the investment is not held for sale. Explain how Gamma should account for the investment.

Show the solution
  1. Control test: 15% with two of seven directors. Gamma cannot direct Delta's relevant activities alone. Not a subsidiary on these facts.
  2. Presumption: 15% is below 20%, so significant influence is presumed absent. This can be overturned if clearly demonstrated.
  3. Indicators present: board representation, essential technical information, interchange of managerial personnel.
  4. Together these show Gamma can participate in policy decisions, so the presumption is rebutted.
  5. Exemptions: the investment is not held for sale, and Gamma is not an exempt parent. No venture capital election is indicated.

Answer: Delta is an associate of Gamma. Gamma should apply the equity method under IAS 28, showing one line for the investment in associate and one for its share of Delta's profit or loss and OCI.

Exam tips

  • Always give reasons from the scenario. A bare '30% so associate' earns few marks, and professional skills marks reward applying facts.
  • Write the order: control, joint control, significant influence. It shows a structured answer and avoids misclassification.
  • When the scenario contains a short list of facts, tick each against the IAS 28 indicators and name them.
  • Mention the exemptions even briefly. Examiners often add held-for-sale or fund status to test scope.
  • If the investment fails the associate test, say which standard applies instead. Do not stop at 'not an associate'.

Practice questions from Associates and joint arrangements

Associates and Significant Influence (IAS 28) in other exams

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

Associates and Significant Influence (IAS 28): frequently asked questions

What is significant influence under IAS 28?

It is the power to participate in the financial and operating policy decisions of an investee without having control or joint control. It is judged from voting power, board representation, participation in policy-making and other indicators. Holding 20% or more of the votes creates a rebuttable presumption.

What is the difference between an associate and a subsidiary?

A subsidiary is controlled by the investor under IFRS 10, so it is consolidated line by line. An associate is only significantly influenced, so it is shown as one line using the equity method. Control means power over the relevant activities, exposure to variable returns and the ability to use power to affect them.

Can a holding below 20% be an associate?

Yes. The 20% test is only a presumption. If the investor has board representation, takes part in policy decisions or has other clear indicators of influence, it can be an associate even below 20%.

When is the equity method not used for an associate?

It is not required when the investment is held for sale under IFRS 5, or when a parent is exempt from preparing consolidated statements. Certain entities, such as venture capital organisations, may elect fair value through profit or loss under IFRS 9 instead.