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CFA Level I · CFA Level I Exam · Code of Ethics and Standards of Professional Conduct

A research analyst is told by a company's chief financial officer in a private call that the company will restate its prior-year earnings downward. The analyst's firm has a policy that limits the flow of such information. The most appropriate action by the analyst's firm to comply with Standard II(A) is to:

The most appropriate action is to use an information barrier that restricts the flow of the material nonpublic restatement information. Passing it to portfolio managers or publishing a lower estimate would amount to acting on or spreading it, contrary to Standard II(A).

  1. Alet the analyst share the news with portfolio managers only
  2. Bestablish and use an information barrier between departments that restricts the informationCorrect
  3. Clet the analyst publish a revised, lower earnings estimate immediately

Explanation

A firewall (information barrier) restricts the flow of material nonpublic information within a firm. Sharing it with portfolio managers or building it into a published estimate would spread or act on the information, breaching Standard II(A).

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