What method is used for accounting equity holdings less than 20%?

The appropriate method for accounting for equity holdings less than 20% is the fair value method. This method is used when an investor does not have significant influence over the investee, which is typically the case when ownership is below the 20% threshold. Under the fair value method, the investment is recorded at its fair market value on the balance sheet, with changes in value recognized in the income statement or other comprehensive income depending on the circumstances.

This method aligns with the principle that the investor does not have the ability to affect the operational and financial decisions of the investee, which distinguishes it from other methods such as the equity method or consolidation method used for more significant ownership stakes. The cost method is a related accounting approach but is less specific than the fair value method for tracking changes in investment value over time.

In summary, utilizing the fair value method allows for a straightforward approach to reporting investments in entities where influence does not exist, and it is crucial for reflecting the true economic positions of the holdings in financial statements.