What is Associate Company?
An associate company is an entity over which an investor has significant influence but not control, typically demonstrated by holding 20% to 50% of the voting rights or by representation on the board. Investments in associates are accounted for under the equity method per IAS 28, which records the investor’s share of the associate’s profits and losses.
How It Works
- Identify significant influence (voting rights, board seat, participation in policy decisions).
- Record the investment initially at cost.
- Recognize the investor’s share of the associate’s net profit or loss in subsequent periods.
- Reduce the carrying amount for dividends received.
- Test for impairment if there are indicators of loss in value.
Saudi Context
Saudi listed companies typically disclose associate investments separately, with the investor’s share of associate profit shown as one line in the consolidated income statement. CMA requires detailed note disclosures on material associates. Joint venture associates with foreign partners are common in industrial, healthcare, and tech sectors aligned with Vision 2030 partnerships.
Example
A Saudi listed company owns 30% of an associate that earned SAR 50 million in net profit. Under the equity method, the investor records SAR 15 million as its share of associate profit (a non-cash income line). The associate’s full revenue and expenses are not consolidated; only the share of profit and the carrying amount appear in the consolidated statements.