Chartered Financial Analyst (CFA) Practice Exam Level 2

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What threshold of ownership indicates a controlling interest for consolidation purposes?

Less than 20%
20–50%
More than 50%
Exactly 50%

The correct answer is: More than 50%

For consolidation purposes, a controlling interest is indicated by ownership of more than 50% of the voting shares of another entity. When an entity holds more than 50%, it has the ability to govern the financial and operating policies of the controlled entity, which justifies the requirement for consolidation in the financial statements. In this context, ownership of less than 20% typically signifies a passive investment without control, while ownership between 20% and 50% may suggest significant influence but not control. Exactly 50% could theoretically indicate control, but in practice, ownership beyond 50% is required to ensure that control is present and that the parent company can dictate decisions. Therefore, the correct threshold indicating a controlling interest is ownership of more than 50%.