CFA Practice Question

CFA Practice Question

Bore and More are vying for an investment banking contract from Grassland Hosiery. Brett, the investment banking president asks Phil, an analyst, to write a positive report on Grassland Hosiery to help the firm win the contract. Phil complies and Bore and More win the coveted contract. In his next report Phil presents what he believes is an objective opinion.

I. Phil has violated Standard I (B) - Independence and Objectivity.
II. Phil has violated Standard VI (A) - Disclosure of Conflicts.
III. Brett has violated Standard IV (C) - Supervisory Responsibilities.

Which statement(s) is (are) true?
A. I and II.
B. I and III.
C. I, II and III.
Explanation: By complying with the request to issue a favorable report on Grassland, Phil has not only violated the standard on independence and objectivity, he may have also violated Standard V (A) - Reasonable Basis by not exercising diligence and thoroughness in his report. By not disclosing their new relationship with Grassland in his second report, Phil has violated the standard on disclosure of conflicts to clients. Finally, his supervisor, Brett, who should have reviewed both reports for such accuracies, has failed to discharge her supervisory responsibilities.

User Contributed Comments 5

User Comment
dimos I still do not understand (and after the explanation given) why statement II is not true. Can anyone help?
mtcfa Statement II is true; it is a disclosure conflict because the firm does bot research and i-banking for Grassland.
Bobokoko I would think that if you just wrote a whole report, you put in plenty of due diligence...you just changed a couple of numbers to make it positive. Right??
cjpatel But changing a couple of numbers on Top Management request would be a violation of Independece And Objectivity.
moneyguy "Just write up a favorable report for..." (a violation is definitely about to occur)
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