Question #10 - Reading 42.5 Standards of Professional Conduct Guidance for Standards V

Reading: Reading 42.5 Standards of Professional Conduct Guidance for Standards V

PDF File: Reading 42.5 Standards of Professional Conduct Guidance for Standards V.pdf

Page: 7

Status: Unattempted

Correct Answer: B

Shared Context

- Under the current circumstances, the Director of Research should: A) allow the report to be distributed, as is. B) require the report to be redone to ensure compliance with CFA Institute Standards. C) require the report to be redone with a neutral or hold rating pending the outcome of the awarding of the investment banking business.

Question

The research report, as shown, has several aspects which violate CFA Institute Standards of Professional Conduct. Which of the following is NOT an apparent violation of CFA Institute Standards?

Answer Choices:

A. The report does not adequately discuss the factors important to analysis, recommendations, or action

B. The report violates guidelines on investment performance presentation

C. The report does not distinguish between fact and opinion

Explanation

There is no attempt in the report to present data on the firm's performance as an investment manager. Violations relating to the report itself include the following: Though SpecChem's current and prospective earnings are mentioned, no real basis of SpecChem's earnings power is discussed, nor are such factors as cash flow, operating strength or financial condition. Brown has violated Standard V(B): Communication with Clients and Prospective Clients. The report fails to disclose Lang's market-making activities with SpecChem. This omission violates Standard VI(A): Disclosure of Conflicts. Brown is not separating fact from opinion in her comment, "There is plenty of room for upside earnings surprises if volume and prices improve further, which would take the stock up strongly." This is a violation of Standard V(B): Communication with Clients and Prospective Clients. The above-noted comment could also be considered a violation of Standard I(C): Misrepresentation.

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