An entity in which another entity (an investor) places its investments, and by virtue of which the latter (the investor) has significant influence over the former (the investee). When an entity (the investor) has significant influence over another (the investee)—but not majority voting power— it (i.e., the investor) accounts for its investment in the investee using the equity method of accounting. The equity method of accounting is used to account for an entity’s investment in another entity (the investee), only when the investor has significant influence over the investee.

Many equity investments do not require the acquisition or consolidation of investees. Generally, an investor accounts for an investment as a consolidated subsidiary when it has the ability to exercise control over the subsidiary. However, the investor may only maintain significant influence over the investee, in which case the equity method of accounting is applied. Otherwise, if an investor exercises neither control nor significant influence over the entity being acquired or invested in, the investor uses the fair value method.

An entity is typically considered to have significant influence, but not control, when it owns between 20% and 50% of the voting rights in the unconsolidated entity (subsidiary). In which case, the entity with significant influence does not recognize the subsidiary’s assets and liabilities on its balance sheet. Instead, the interest of an investor in an investee is expressed as an investment in an affiliate (or equity investment), by means of non-current asset account on the investor’s balance sheet.