CFA Practice Question

There are 361 practice questions for this study session.

Mike is a financial analyst and outside director of Lester Trust Corporation. Lester's board of directors learns that the company management has, in its financial statements, concealed a significant loss, due to a severe loss in its foreign operations resulting from a two-month strike. Although this will result in illegally misleading financial statements, the board of directors votes not to disclose the loss. What should Mike do?
Correct Answer: He should:
  • resign from the board and sever his connections with Lester Trust.
  • consider reporting the situation to appropriate regulators.

User Contributed Comments 17

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kalps

No supervisor as he is director, therefore resign and should really report to the appropriate supervisory body as directors have a fiduciary duty to do so

JackyFu

But can Mike seek advice from the counsel of his Firm? I mean the one he works as Financial Analyst.

biya

the two actions are needed because of his position of director in lester Trust but can he also go for legal or firm counsel advice

jam99003

First I would think that he should try to talk sense into the board. Then resign and consider reporting if not remedied.

durikang

Firstly, he should inform the board of directors the risk of this violation persuade them to disclose the loss.
Despite his efforts, if they still try not to disclose the loss, he should resign his role right now.

danrow

Well, when the board votes it means that they were not convinced by lester arguments. The first thing he did was to make them understand the risks.

haosheng

Disassociate from the institute,
Report to authority

hannovanwyk

is not required by law to report to authority...

kforcfa

why shoudl he report to authority???

SST4

just two key words: ethical behavior, integrity

rohits79

He knows rules are broken (so can't go to counsel for advice), as he doesn't have a boss to inform he dis-associate and if required goes to the authority

gulfa99

does this all make sense..if you are earning big bucks in a recessionary enviornment which we are living in now, you will not quit your job for such kind of incidents as this is being done at the management level. Simple, you cant do much about it..

alester83

you are only required to report to authorities if there is a law that mandates you do. the institute does not require it, but again judgement should decide what to do

johntan1979

Well, it doesn't make sense to me why you are taking the CFA exam, gulfa99, if you have read and understood the 6 components and 7 Standards.

mbowa

The way forward seems so drastic, is it because he is also director?, what happened to inform supervisor and dissociate from activity?

UcheSam

@gulfa99, I will advice you delete your comment. Read and understand the Code of Ethics and the Standard. Then ask yourself if you really want to practice. This standard and codes apply to you as a student.

walterli

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