What is Significant Influence?
Significant influence is the power to participate in the financial and operating policy decisions of an investee, but without controlling or jointly controlling those policies. It is presumed when an investor holds 20 percent or more of the voting rights, and triggers equity method accounting under IAS 28.
How It Works
- Assess voting rights, board representation and material transactions with the investee.
- If 20 percent or more is held, presume significant influence unless rebutted.
- Apply the equity method: recognize a share of the investee’s profit or loss.
- Account for dividends as a reduction of the investment balance.
Saudi Context
Saudi holding companies with 25 to 40 percent stakes in regional industrials typically apply the equity method, recognizing their share of investee profit each period.
Example
A company holding 30 percent of an associate that earns SAR 10 million recognizes SAR 3 million as its share of profit in its own income statement.