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CFA Level I · CFA Level I Exam · Guidance for Standard V: Investment Analysis, Recommendations, and Actions

An analyst includes a vendor's credit model output in a client report without mentioning the vendor. Later the model is found to omit severe downside scenarios, so the report overstates the investment's value. Which statement best describes the analyst's responsibility?

The analyst bears responsibility. Misrepresentations arising from third-party materials become the member's responsibility once incorporated into the member's work, and the analyst should also have disclosed the use of the vendor and tested a broad range of scenarios. The vendor's error does not shift the duty.

  1. AThe analyst is responsible for the misrepresentation because material from outside parties becomes the analyst's responsibility once incorporated into the workCorrect
  2. BThe vendor alone is responsible, because the error originated in the vendor's model
  3. CThe analyst is responsible only if the client suffers a loss exceeding the report's stated expected return

Explanation

Under the guidance on use of third-party information, misrepresentations resulting from outside materials become the member's responsibility when incorporated into the member's work. Members must also disclose intended use of external parties and incorporate a broad range of assumptions. Whether a loss occurs is irrelevant to the duty.

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