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

Which firm policy would most likely support the conduct required by Standard V(A) for computer-based models used to rate financial instruments?

The best policy is written guidance establishing minimum scenario testing of all computer-based models, with criteria for breadth of scenarios, accuracy of output over time and cash flow sensitivity to inputs. This gives a measurable, consistent basis for judging model reliability under Standard V(A).

  1. AWritten guidance setting minimum levels of scenario testing, covering breadth of scenarios, output accuracy over time and cash flow sensitivity to inputsCorrect
  2. BAllowing each analyst to decide privately whether a model needs any testing
  3. CReviewing the model only when a client complains about a rating

Explanation

The compliance practices call for detailed written guidance on minimum scenario testing of all computer-based models, with criteria on breadth of scenarios, accuracy of output over time and cash flow sensitivity to inputs. The other options leave testing discretionary or reactive and give no measurable criteria.

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