Can someone explain why is Option C incorrect in easy way??????
Kindly refer below question.
After the meeting, Prem prepares an investment research report with the excerpt shown in Exhibit 1.
Exhibit 1: Research Report on Kandy Tea Estate Limited
Kandy Tea Estate Limited |
---|
Date: December 2013 |
Analyst: Murali Premadosa |
Chartered Financial Analyst |
Recommendation: Long-term buy with associated high commodity risk supported by large growth prospects for Sri Lanka as well as liquidity risk because it is a thinly traded company in a frontier market. |
Tea Production by Country (million kilograms) | ||||
---|---|---|---|---|
2008 | 2009 | 2010 | CAGR (2008-2010) | |
India | 980.8 | 979.0E | 966.4E | –0.7% |
Sri Lanka | 318.7 | 290.6 | 331.4 | 2.9% |
Notes: CAGR is compound annual growth rate. Production for India’s production in 2009 and 2010 is estimated.
Sources: Based on data from the India Tea Board and Sri Lanka Tea Board
Prem’s research report in Exhibit 1 least likely violates which CFA Institute Standard of Professional Conduct?
- Plagiarism
- Use of CFA designation
- Communication with Clients
Solution
3. Incorrect because Prem also violated Standard V(B)–Communication with Clients and Prospective Clients by citing dated tea production information. As a result, clients are unlikely to be able to follow the reasoning behind his recommendation.
Option C is incorrect because it misinterprets the question. The question asks which CFA Institute Standard of Professional Conduct Prem’s research report least likely violates. Option C states that Prem violated Standard V(B)–Communication with Clients and Prospective Clients by citing dated tea production information, which could hinder clients’ understanding of his recommendation.
To understand why Option C is incorrect, we need to focus on the phrase “least likely violates.” The report in Exhibit 1 discusses risks associated with Kandy Tea Estate Limited, mentioning high commodity risk and liquidity risk due to being in a thinly traded frontier market. It does not violate the standard of communication with clients as it provides relevant information about the risks involved in the investment.
Therefore, the correct answer should identify a standard that Prem’s report is less likely to violate. In this case, it would be Standards I (A)–Knowledge of the Law and Standard V (A)–Diligence and Reasonable Basis, which are not directly implicated by the specific issues raised in the report (plagiarism or improper use of the CFA designation). Thus, Option C is not the correct answer because it mistakenly claims a violation where one is less apparent.
I still did not get you. As per my understanding the phrase “least likely violated” means the standard which is “Not violated”, so as per your explanation from the second para, you mentioned,
“It does not violate the standard of communication with clients as it provides relevant information about the risks involved in the investment.”
So it means the standard is not violated. So why is option C incorrect???
Prem’s inclusion of outdated data violates the Communication with Clients and Prospective Clients standard because it compromises the accuracy, clarity, and relevance of the information provided. Therefore, he most likely violated this standard, making option C incorrect as the one least likely violated.
In other words, option C is incorrect because Prem did violate the standard of Communication with Clients and Prospective Clients by using outdated data, which fails to provide clients with accurate and clear information necessary to understand the recommendation.