The equity method is used to value a company’s investment in another company when it has significant influence over the company in which it invests.
The threshold for “significant influence” is typically 20-50% ownership.
Under the equity method, investments are initially recognized at cost and adjustments are made to the cost based on the investor’s share of net income, losses and dividend payments.
The net profit of the investee increases the value of the investor’s assets on their balance sheet, while the loss of the investee or the payment of dividends reduces it.
The investor also records the percentage of net profit or loss of the investee in his income statement.
Accountability is the acceptance of responsibility for one’s actions. This implies a willingness to be transparent, allowing others to observe and evaluate their work.
Accounting policies are the procedures a company uses to prepare financial statements. Unlike accounting principles, which are rules, accounting policies are the standard for following those rules.
Acquisition accounting is a set of formal guidelines describing how the acquirer should report the assets, liabilities, non-controlling interests and goodwill of the acquired company.
Performance Based Management (ABM) is a means of analyzing a company’s profitability by looking at every aspect of its business to determine its strengths and weaknesses.