Cynthia Abbott, a CFA charterholder, is preparing a research report on Boswell Company for her employer, Capital Asset Management. Bob Carter, president of Boswell, invites Cummings and several other analysts to visit his company and offers to pay her transportation and lodging. Abbott declines Carter’s offer but, while visiting the company, accepts a gift from Carter valued at $75. Abbott fails to disclose the gift to her supervisor at Capital when she returns. In the course of the company visit, Abbott overhears a conversation between Carter and his chief financial officer that the company’s earnings per share (EPS) are expected to be $1.10 for the next quarter. Abbott was surprised that this EPS is substantially above her initial earnings estimate of $0.70 per share. Without further investigation, Abbott decides to include the $1.10 EPS in her research report on Boswell. Using the high EPS positively affects her recommendation of Boswell. Which of the following statements about whether Abbott violated Standard V(A), Diligence and Reasonable Basis and Standard I(B), Independence and Objectivity is TRUE? Abbott: A) violated both Standard V(A) and Standard I(B). B) violated Standard V(A) but she did not violate Standard I(B). C) did not violate either Standard V(A) or Standard I(B). D) did not violate Standard V(A) but she violated Standard I(B).
what is the criteria to decide whether the gift is token item or not? Is there a specific amount?
The answer is B and I think the amount is $100
B as explained above
Right, B is correct. I was confusing about the token item. Abbott violated Standard V(A), Diligence and Reasonable Basis, because she did not have a reasonable and adequate basis to support the $1.10 EPS without further investigation. By including the $1.10 EPS in her report, she did not exercise diligence and thoroughness to ensure that any research report finding is accurate. If Abbott suspects that any information in a source is not accurate, she should refrain from relying on that information. Abbott did not violate Standard I(B), Independence and Objectivity, because the gift from Carter was merely a token item.
I would choose B as well, but for different reason. If the company is a CLIENT of the analyst’s firm, no matter how small the size of the gift, he must disclose to employer. However, the company is not client juded from the senario, and the amount is too small to infect objectivity, he need not report. It hs nothing to do to deal with the exact amount of token gift.
hopetobeat, I think accepting a gift from a non-client is more serious than accepting a gift from client.
“… Therefore, members and candidates may accept bonuses or gifts from clients but must disclose to their employer such benefits from clients. …” I think because client is the the employer’s client, so the firm needs monitor closely all activities between employee and its client. As to non clients, analyst simply use independance and objectivity standard to determine whether it’s acceptable, but no need to report, as long as the gift is not qualified additional compensation arrangements,which is the topic of standard 4(B)
picked A but it is B, correct. These continue to trick me
I would answer B.
JayJeon Wrote: ------------------------------------------------------- > what is the criteria to decide whether the gift is > token item or not? Is there a specific amount? 100