Final answer:
Significant influence refers to the power to affect an investee's policies without holding majority control, typically indicated by ownership of 20% to 50% of voting shares. However, even with less than 50% ownership, signs like board representation or policy-making involvement could point to significant influence. It is a judgement-based assessment in financial reporting.
Step-by-step explanation:
Significant influence occurs when an investor holds a level of power over the operating and financial policies of an investee, without having control or joint control over those policies. This concept is most relevant in the context of accounting and financial reporting. Although significant influence is often associated with owning 20% to 50% of the voting shares in an investee, it can be evidenced in several ways, especially when an investor's financial interest is below the 50% threshold.
Examples of significant influence may include representation on the board of directors, involvement in the policy-making process, material transactions between the investor and investee, interchange of managerial personnel, or provision of essential technical information. It's important to note that the assessment of significant influence is largely judgmental and should be based on the substance of the relationship, not merely on the percentage ownership.
In conclusion, ownership percentage below 50% does not automatically preclude an investor from having significant influence over an investee's financial and operating policies; the presence of one or more indicators like board representation or policy involvement would suggest such influence exists.