There are many listed companies who own a bunch of subsidiaries and/or associates. Knowing the differences between the two can be important when reading financial reports.
| Subsidiary | Associate | |
| Control | Direct control and possess decision-making power | Strong influence but not complete control |
| Ownership | Typically majority ownership of more than 50% | Typically minority ownership between 20% and 50% |
| Income statement | Included in parent’s consolidated financial statement. There is a separate line at the end of statement to deduct income attributable to non-controlling interest | Accounted using equity method (see below for definition of equity method) |
| Balance Sheet | Assets and liabilities are presented as those of a single economic entity | Recorded as non-current asset under “Investment in associate” |
| Cash flow statement | Included in parent’s consolidated financial statement | Only accounted directly cash to / from associates under investing cash flow |
What else besides subsidiaries and associates?
While subsidiaries and associates are two of the most common, a company can also partially own another company and classify them as “joint venture” or “financial assets / financial instruments”.
Definitions from MFRS
Subsidiary: An entity that is controlled by another entity.
Non-controlling interest: Equity in a subsidiary not attributable, directly or indirectly, to a parent.
Associate: An entity over which the investor has significant influence
Significant influence: The power to participate in the financial and operating policy decisions of the investee but is not control or joint control of those policies.
Joint Venture: joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.
Joint control: contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.
Equity Method: A method of accounting whereby the investment is initially recognized at cost and adjusted thereafter for the post-acquisition change in the investor’s share of the investee’s net assets. The investor’s profit or loss includes its share of the investee’s profit or loss and the investor’s other comprehensive income includes its share of the investee’s other comprehensive income
Disclaimer: I am not a financial professional nor coming from finance education background. The above is a summary from my study to aid my comprehension of financial records. Welcome to correct and comment.
