operating entity providing services

This subtopic tells investment companies how (and whether) to apply the equity method of Topic 323. The general rule is that an investment company does not use the equity method for its noncontrolling ownership interests; instead it measures those investments at fair value under Subtopic 946-320. The one exception is an investment in an operating entity that provides services to the investment company (e.g., an investment adviser or transfer agent), which is accounted for under the equity method if it otherwise qualifies.

This Subtopic tells an investment company (as defined in Topic 946) when consolidation applies. The general rule: an investment company does not consolidate an investee that is not itself an investment company, even if it holds a controlling financial interest; instead that interest is measured at fair value under Subtopic 946-320. The one exception is a controlling financial interest in an operating entity that provides services to the investment company (e.g., an investment adviser or transfer agent), which must be consolidated.