- CFA Exams
- CFA Level I Exam
- Study Session 1. Ethical and Professional Standards
- Reading 2. Guidance for Standards I-VII
- Subject 2. Standard I (B) Independence and Objectivity
CFA Practice Question
There are 291 practice questions for this study session.
CFA Practice Question
John Smith is an analyst who covers a company called HGF. HGF plans to take him on a site visit to one of their remote locations. HGF will pay for all of John's travel and accommodation expenses. John will use the information he gathers to complete a report he is writing about HGF. According to the Code and Standards what is the correct course of action for John to take?
A. Do not accept the trip under any circumstances.
B. Pay for the travel and other expenses.
C. Accept the trip but disclose all the costs paid for in the report.
Explanation: Members shall use reasonable care and judgment to achieve and maintain independence and objectivity in making investment recommendations or taking investment action. Consequently the analyst may accept the trip but needs to pay for the travel and other type expenses. An analyst may not accept the trip just because it will enable him to write a good report. An analyst may not accept the trip just because he discloses the costs in his report. The analyst should refuse an opinion on the company and only release factual information about the company.
User Contributed Comments 14
|dcshea||when they state "remote" location, doesn't the code of ethics then allow for the company to pick up the cost of the flight?|
|cfajune06||thats what i thoguht too... i think he shud accept the offer and just disclose it in the report|
|adidas||a trip is not a small gift. You have to pay for it according the ethics book.|
|SueLiu||Check the notes, Example 2 gives practically this exact situation and says you can accept as long as costs are not lavish! You are not supposed to accept if you HAVE to go to that location to do the report. But it sounds in this situation like the company would like to give him a first hand view of their facilities.
Anyone have a reason why this would be different?
|halu||the word remote changes the tone of question making "Accept the trip but disclose all the costs paid for in the report" look as the correct answer? isn't it?|
|kris||This Q is a little dicey.. the Code book states that the best measure would be to pay for expenses yourself and also states that there is no violation if the company pays for the expenses as long as the analyst discloses it. Here however, it seems more like the company wants Smith to go over to the site and write the report. He should definitely pay the expenses himself to avoid conflict.|
|rvenkat||I got stumped by the word 'remote' too....in addition what is a 'good report'? It can be interpreted (as I did infact) as a 'thorough and factual' report.....I only wish the answer had 'favourable' instead of 'good' (well, in that case, it becomes too easy?)|
|will||Required reading, page 25, recommended procedures for compliance: item 3: Restrict special cost arrangements. When attending meetings at an issuer's headquarters, members or candidates should pay for commercial transportation and hotel charges. No corporate issuer should reimburse members or candidates for air transportation.
It's clear that the answer is correct.
|volkovv||Agree with will, C is the answer here.|
|CFADru||From 1(B) Application of the Standard: "In general, when allowing companies to pay for travel and/or accomodations (under these circumstances) members and candidates must use their judgement- keeping in mind that such arrangements must not impinge on a member or candidate's independence and objectivity. In this ex. the trip was strictly for business and the candidate was not accepting irrelevant or lavish hospitality. The accomodations were modest. The arrangements are not unusual and did not violate so long as the candidate's independence and objectivity were not compromised." Bottom line-- you can accept travel being paid.|
|jmcarr02||It is not a trip at the head office of the company, it is to a 'remote location', which implies to me that the location is not easily accessible through commercial transportation, and thus, he could accept the paid trip.|
|migena||I think in addition to travel expenses into the remote place for conducting research, which may be reasonable to accept, if the question had also given an option on whether or not to also accept accommodation, I think the analyst in that case would have to pay for his own accommodation. Travel expenses would be acceptable to receive if there it was a case of a group of analysts research expedition - and there was not any commercial flight available to the location. The question trips one with the words 'remote' which does not necessarily mean lack of available commercial flights to the location and definitely pay for his own accommodation as well as where/when seen appropriate to serve independence and objectivity intact, disclose travel expenses, but only if there was not any commercial available.
I went a bit round, sorry, but the question did seem to me ambiguous due to words 'remote' and 'good'!!
|chris54321||In real life I would take whatever I could get and write them a good report in return.|
|castorsky||Remote location. So accept but dislose. Isn't it?|