The equity method of accounting for long-term investments in equity securities is based on the presumption that the investor owns a sufficient number of the outstanding voting shares of another company to exercise significant influence over the operating and financing policies of the other company.

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The equity method of accounting is indeed based on the presumption that the investor owns a significant proportion of the outstanding voting shares of another company and can exercise significant influence over its operating and financing policies. This presumption is typically met when an investor owns between 20% and 50% of the voting shares of the other company, although ownership of less than 20% can also result in significant influence depending on the specific circumstances. Under the equity method, the investor records its share of the other company's net income, as well as any changes in the value of its investment.

The Equity Method of Accounting for Long-Term Investments in Equity