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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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


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


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


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


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.


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.


Disassociate from the institute,
Report to authority


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


why shoudl he report to authority???


just two key words: ethical behavior, integrity


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


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..


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


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.


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


@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.