Consolidation is required when a parent company has control. This is typically evidenced by which criterion?

• A. Ownership of less than 20%
• B. Ownership of more than 50% voting interest
• C. Control through contractual arrangements only
• D. No influence by the parent

Answer: (B)

Control is the power to govern the financial and operating policies of an entity to obtain benefits, which triggers consolidation. The most common and straightforward evidence of that control is owning more than half of the voting shares. With a majority of voting interest, the parent typically can influence or appoint the board and approve key decisions, directing the subsidiary’s activities and results. While control can exist in other ways, such as certain contractual arrangements, they are not the usual or most reliable indicator in most situations. Owning less than 50% or having no influence clearly does not show the power needed for consolidation. Therefore, having more than 50% of the voting interest is the best indicator that consolidation is required.