I am very confused on the expenses that a company can pay to a research analyst since I did a question related to that topic.
I always thought that an analyst cannot only accept the company for which he will do a research paper to pay him the travel expenses. I also thought that the only exception is IF it’s a location which is difficult to access.
Now the following question disturbs me…: an analyst and plans to visit a company that she is analyzing in order to prepare a research report. The Standard related to independence and objectivity: allows the analyst to accept transportation, lodging, expenses, and compensation for writing a research report, but requires that she disclose such an arrangement in her report (correct answer).
Why is that correct? I read that this analyst could only accept not to pay for these expenses if the location was difficult to access and that he has to pay for the accomodation…
Client’s need to decide for themselves whether they think that the costs covered by the company could have influenced the analysts report.
Generally the analysts firm should cover the expenses. If the analyst does accept transportation/accommodation etc. from the company, if for example it is a charted flight with several other analysts and the accommodation is nothing extravagant (more done out of convience), then it is fine but should still be disclosed.
Edit: I think you’re referring to the company specifically hiring an analyst to write a report on the company. In this case, yes they should disclose it for the reason mentioned above. Client’s need to decide for themselves whether they think that the costs covered by the company (or compensation/analysts interests) could have influenced the analysts report.
QUESTION: Mister Doe, CFA, is an analyst and plans to visit a company that she is analyzing in order to prepare a research report. The Standard related to independence and objectivity:
A) requires Dudley to pay for her own transportation costs and not to accept any gifts or compensation for writing the report, but allows her to accept accommodations and meals that are not lavish.
b)requires Dudley not to accept any compensation for writing a research report, but allows her to accept company paid transportation, lodging, and meals. c)allows Dudley to accept transportation, lodging, expenses, and compensation for writing a research report, but requires that she disclose such an arrangement in her report. I chose A (and correct answer is C) because I saw other questions, maybe slighty different I admit, where I read that the analyst should be for the accomodation and the travel expenses (unless the location is difficult to access) Voilà
Lol, that’s exactly what I thought and chose. The catch here is the “compensation” part. Assuming you are hired by the same company you are analyzing, you are allowed to accepta flat fee for compensation. If you accept the rest of the stuff and disclose it, then it shouldn’t be an issue either. But all this is provided you are hired by the company you are analyzing, in my opinion this information should have been mentioned.
Like Gigaloo said, the clause in the question is the " compensation". By being hired to write a research report, you have to negotiate a flat fee, meaning you have to be compensated for your effort.
Based on the question, and options available, you have to eliminate the options without compensation and weigh the remaining options for the most likely answer.
The question itself is not clear enough, as analyst is expected to cover his transportation, lodging expenses in the event that the location of the research coverage is not hard to get to.
So in this case, we eliminate Option A because it asked the analyst not to accept compensation for his service.
Also, we eliminate option B because of the same reason of no compensation.
We accept option C which is the closest to the correct answer, but still faulty in my view.
I agree. I have done some 500 questions on ethics and got mostly 70%+ in all topic tests, read schweser twice and curriculum once on the same. Still in my mocks I am getting around 65% only. And some of these weird questions in the mocks totally throw me off my game.
These ethics standards are redundant. Some related topics are scattered under several of 7 standards so it is not easy to follow. It looks like ISO standards.
My takeaway as to why C is correct is that option A and B state that it _ requires _ the analyst to not take any compensation or transportation benefits. An analyst can write a research paper pro bono and still remain independent and objective and an analyst can receive transportation benefits (bus ticket, taxi even an air ticket) and still remain objective and independent. Option C makes sense because it states what I just mentioned: It _ allows _ for the analyst to accept certain benefits and still remain objective and independent, but this should be disclosed. Going back to A and B, if the question openly states lavish hotels, 5 star restaurants etc… then this could be viewed as a violation of the standards.
It says token gifts allowed. Maybe for me a Mercedes Benz is just token gift, in case I would retain the objectivity:) There is no any cash upper limit mentioned.
It says token gifts allowed. Maybe for me a Mercedes Benz is just token gift, in case I would retain the objectivity:) There is no any cash upper limit mentioned.
Many years ago the Code and Standards had USD 100 as the threshold; they’ve since removed any explicit limit.
On the exam you won’t be asked to explore the threshold; that’s not the point of the exam. The point is to determine if you know what to do with a gift that’s clearly below the threshold (e.g., a baseball cap) and what to do with a gift that’s clearly above it (e.g., a three-week, all expenses paid ski vacation in Aspen).