CFA CFA Level 2 Question of the Week: Level 2 – Financial Reporting and Analysis

Question of the Week: Level 2 – Financial Reporting and Analysis

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    • MarkMeldrum
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      Company A owns 18% of Company B, but through 4 board seats exerts significant influence.  This investment would be classified as:

      • A. a business combination.
      • B. an investment in associates.
      • C. an investment in financial assets.
    • MarkMeldrum
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      The correct answer is Option B.

      The distinction between investments in financial assets, investments in associates, and business combinations is based on the degree of influence or control, rather than purely on the percent holding.

      Investments in marketable debt and equity securities can be categorized as:

      1. investments in financial assets in which the investor has no significant influence or control over the operations of the investee,
      2. investments in associates in which the investor can exert significant influence (but not control) over the investee (as outlined in the question), and
      3. business combinations, including investments in subsidiaries, in which the investor has control over the investee.
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