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In determining whether the equity method should be applied to an investment in common stock, an...

In determining whether the equity method should be applied to an investment in common stock, an investor should consider whether it can exercise significant influence. Significant influence is characterized by certain quantitative factors (20% ownership) and qualitative factors. What are the six qualitative factors an investor should consider? Cite the source for your answer.

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Answer #1

Part 1

The ASC 323-10-15, FASB Accounting standard codifications states -
"The equity method tends to be most appropriate if an investment enables the investor to influence the operating or financial decisions of the investee"

That means, an investor should consider wheather it can exercise significant influence.

Part 2

The qualitative factors are as follows-
1. Financial Policies
2. Operating Policies
3. Relevance
4. Reliability
5. Social Trends
6. Characteristics & in-substance of common stock etc.

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