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A CA in service holds employee stock options whose value is materially affected by reported profit. The board is considering an aggressive but defensible interpretation of a revenue contract that would lift current-period profit and the share price. Which response best aligns with the Code's safeguards against self-interest threats?
ASell the options before the decision and then proceed normally as a disinterested participant
BDisclose the holding to the auditor; this disclosure itself eliminates the threat
CHold the options unchanged but document the decision in a board file note to discharge responsibility
DAssess the level of the threat; if not at an acceptable level, apply safeguards such as recusal from the technical decision, consultation with technical desk or audit committee, or independent review — only proceed if the threat is reduced to acceptable
Answer & Solution
Correct answer: D. Assess the level of the threat; if not at an acceptable level, apply safeguards such as recusal from the technical decision, consultation with technical desk or audit committee, or independent review — only proceed if the threat is reduced to acceptable
The Code's threats-and-safeguards model applies. The CA must evaluate whether the self-interest threat from holding price-sensitive options is at an acceptable level; if not, safeguards (recusal, independent review, technical consultation, audit-committee oversight) are required. Disclosure alone (B) does not eliminate the threat. Selling the options pre-decision (D) may constitute insider trading. A file note (C) does not address the conflict.
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