Significant influence is when an investor has a tremendous amount of power in making important decisions regarding financial and business decisions. An investor who has significant influence must exercise the equity method.
Example:
Adequate Disclosure owns 30% of ownership of capital stock of Inadequate Disclosure. However Adequate Disclosure does not influence the day to day operations. Does Adequate Disclosure have significant influence?
Answer: No, Adequate Disclosure does not retain significant influence even though Adequate Disclosure owns 30% ownership of stock.