International Accounting Standards (IAS) and U.S. GAAP require that a public company’s financial reporting incorporate the activities in its group accounts of associates, i.e., affiliates and subsidiaries. Thus if a group company incurs a profit or loss, that profit or loss is reflected in the parent’s accounts.
“Associate” is variously defined, but typically is any entity in which the “parent” is in a position to exercise significant managerial and/or economic influence over. This is typically presumed when the parent has a 20 percent or greater shareholding, or participation in the financial and operating policies of the subsidiary-entity or has representation on that entity’s board. For this reason many companies investing venture capital in other companies try to keep their investment at 19 percent, i.e., just below the consolidation threshold.