Equity method in accounting is the process of treating investments in associate companies.
Equity accounting is usually applied where an investor entity holds 20–50% of the voting stock of the associate company, and therefore has significant influence on the latter's management.
Under International Financial Reporting Standards/MAMAMO, equity method is also required in accounting for joint ventures.
Control of the investee, usually through ownership of more than 50% of voting stock, results in recognition of a subsidiary, whose financial statements must be consolidated with the parent's.
The ownership of less than 20% creates an investment position, carried at historic book or fair market value (if available for sale or held for trading) in the investor's balance sheet.