The use and usefulness of equity accounting

In this study we examine the use and usefulness (value relevance) of equity accounting. Descriptive evidence shows there is a higher frequency of disclosure about the investment in associates than the share of profits. There is also more diversity in presentation and disclosure than reported by the International Accounting Standards Board. The characteristics of firms differ for those that report ancillary disclosures such as assets and liabilities of the associate. Firm characteristics also differ on whether associate income is reported before earnings before interest and taxes (EBIT). Last, we document that equity accounting is value relevant, but not when alternative accounting options (e.g., fair value or proportionate accounting) are available.