CFA Practice Question

CFA Practice Question

Cariella is a junior analyst who is currently preparing a report on a diamond producing firm, Dense Carbon, Inc. Dense Carbon recently announced that the results of a mining survey in its South African diamond mines were in, which revealed substantial amounts of diamond reserves for the first time. It has offered to take a few industry analysts for a tour of the facilities and take stock of the situation first hand. During this tour, all expenses, including air-care and basic accommodations, were provided for by Dense Carbon. Since the visit spanned a weekend, Dense Carbon also arranged for a Safari tour for all the analysts. Cariella did not consider the safari to be an undue entertainment, given the fact that the analysts had to be in the middle of nowhere for 5 days. She was quite assiduous in her appraisal of the mining reserves and in the final analysis, the tour proved extremely valuable to her analysis. However, she did not reveal the fact about the Safari trip to her employer. Cariella has ______

I. violated Standard VI (A) - Disclosure of Conflicts.
II. violated Standard V (A) - Diligence and Reasonable Basis.
III. violated Standard I (B) - Independence and Objectivity.
A. I, II and III.
B. I and III.
C. I only.
Explanation: Standard I (B) - Independence and Objectivity requires members to use reasonable care and judgment while making investment recommendations. In particular, it requires that members avoid even appearances of conflict of interest or circumstances that could affect their independence or objectivity.

While Dense Carbons travel arrangements for the analysts might not be considered an unnecessary "gift" (this is a gray area), the safari definitely is an unacceptable arrangement from the CFA Institute code of ethics' perspective. By accepting this gift, Cariella violated Standard I (B). By not disclosing this fact to her employer, she violated Standard VI (A) - Disclosure of Conflicts.

User Contributed Comments 2

User Comment
lemec If she had disclosed it to her company, she would still be in violation of I-B since the gift is over $100. A safari under $100 is what you call a day at the zoo, baby! (another way to look at a potential problem)
tommyguard3 Where did you get the $100 number from? I don't recall seeing that anywhere.
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