SAEE - Professional Ethics and Conduct Questions and Answers 1 — Questions and Answers
Question 1: An appraiser is hired to value a company for a shareholder dispute. The client, who holds a majority stake, tells the appraiser, 'I need the valuation to be as low as possible to minimize the buyout cost for the minority shareholder.' Which ethical principle is most at risk if the appraiser agrees to this request?
- Confidentiality
- Competency
- Impartiality and Objectivity (Correct answer)
- Record Keeping
Correct answer: Impartiality and Objectivity
The core ethical principle at risk is impartiality and objectivity. An appraiser must perform assignments without bias and must not act as an advocate for any party, including the client who hired them. Agreeing to a predetermined valuation outcome based on the client's preference violates the fundamental requirement to be a neutral and independent third party.
Question 2: An appraiser is performing a valuation for a company and discovers confidential, non-public information that indicates the company's financial performance will significantly decline next quarter. A close friend, who is a stockbroker, asks for 'any hot tips.' According to professional ethics, what is the appraiser's obligation regarding this information?
- Share the information, as it does not pertain to the final valuation number.
- Disclose the information only after the valuation report is officially published.
- Advise the friend to monitor public announcements about the company.
- Maintain strict confidentiality of all non-public information obtained during the engagement. (Correct answer)
Correct answer: Maintain strict confidentiality of all non-public information obtained during the engagement.
Professional ethics codes, such as those found in USPAP, require appraisers to maintain the confidentiality of all information provided by the client and discovered during the course of an assignment. This information cannot be shared with unauthorized parties. Disclosing such sensitive data would be a serious breach of the appraiser-client relationship and professional conduct rules.
Question 3: Which of the following situations represents a potential conflict of interest that an appraiser MUST disclose to the client before accepting an assignment?
- The appraiser performed a valuation for a competitor company two years ago.
- The appraiser holds a significant, direct financial interest in the company being valued. (Correct answer)
- The appraiser's sibling is a low-level employee at the client's main supplier.
- The appraiser attended the same university as the client's CEO.
Correct answer: The appraiser holds a significant, direct financial interest in the company being valued.
Holding a direct financial interest in the subject company creates a clear conflict of interest because the appraiser's personal financial outcome could be influenced by the results of the valuation. Ethical standards require the disclosure of any interest an appraiser has in the subject property or business to ensure their judgment is not compromised and to maintain transparency.
Question 4: An appraiser is completing a valuation report. To save time, they copy a large section describing industry economic conditions from a report they wrote for a different client six months ago. The data is still reasonably current. Which ethical consideration is most relevant to this action?
- Advocacy
- Scope of Work
- Confidentiality
- Due Diligence and Competence (Correct answer)
Correct answer: Due Diligence and Competence
While reusing work might seem efficient, the core issue is ensuring the analysis is specific and relevant to the current assignment. This falls under the appraiser's duty of due diligence and competence. The appraiser must ensure that all data and analysis, even if reused, are still appropriate, verified, and correctly applied to the specific circumstances of the current subject company, rather than just being copied without fresh consideration.
Question 5: An appraiser is retained by a law firm to provide a valuation in a litigation case. The lawyer tells the appraiser, 'Your job is to help us win. We need you to be a strong advocate for our client's position.' How must the appraiser respond to remain in compliance with professional ethics?
- Agree to be an advocate, as the client is the law firm.
- Refuse the assignment immediately as it is inherently unethical.
- Accept the assignment but inform the lawyer that their role is to be an impartial and objective expert, not an advocate. (Correct answer)
- Request a higher fee to compensate for the additional requirement of advocacy.
Correct answer: Accept the assignment but inform the lawyer that their role is to be an impartial and objective expert, not an advocate.
The Ethics Rule of professional standards like USPAP explicitly states that an appraiser must not perform as an advocate for any party or issue. The appraiser's role is to provide an independent and unbiased opinion of value. The correct action is to clarify their ethical obligations to the client—they can provide an expert opinion, but it must be impartial and not an act of advocacy.
Question 6: Under what circumstances is it generally permissible for an appraiser to disclose confidential information from an assignment without the client's consent?
- When requested by a potential buyer of the subject company.
- When required to do so by due process of law or a state regulatory agency. (Correct answer)
- When using the information for a case study presentation at a professional conference.
- When sharing details with a colleague at another firm to get a second opinion.
Correct answer: When required to do so by due process of law or a state regulatory agency.
Professional standards, like the Confidentiality section of the USPAP Ethics Rule, strictly limit the disclosure of confidential information. However, there are specific exceptions. These include being required to disclose information by law (e.g., a court order), to state appraiser regulatory agencies, or to a duly authorized professional peer review committee. All other scenarios listed would typically require client authorization.
SAEE - Professional Ethics and Conduct Questions and Answers 1
An appraiser is hired to value a company for a shareholder dispute.
The client, who holds a majority stake, tells the appraiser, 'I need the valuation to be as low as possible to minimize the buyout cost for the minority shareholder.' Which ethical principle is most at risk if the appraiser agrees to this request?