CGA Ethics Standards & Legal Compliance 5 — Questions and Answers
Question 1: What is the ethical significance of maintaining a separation between an appraiser's role as a buyer/seller and their role as an appraiser?
- It reduces the appraiser's workload
- It prevents conflicts of interest that could compromise the objectivity of valuations (Correct answer)
- It ensures appraisers can specialize in specific gem types
- It is required only for appraisals over $50,000
Correct answer: It prevents conflicts of interest that could compromise the objectivity of valuations
Combining buying/selling with appraising creates financial conflicts of interest that can bias valuations and undermine client trust.
Question 2: According to FTC guidelines, when must a gemstone's country of origin be disclosed in a sales or appraisal context?
- Only for gemstones valued above $10,000
- When it is a material fact that influences consumer purchasing decisions or value (Correct answer)
- Only for colored stones, never for diamonds
- Disclosure is voluntary and never required by the FTC
Correct answer: When it is a material fact that influences consumer purchasing decisions or value
The FTC requires disclosure of material facts that affect consumer decisions, and origin can be a material factor that significantly influences a gemstone's value and desirability.
Question 3: A CGA receives a subpoena to testify as an expert witness about a gem they previously appraised. Their primary ethical obligation is to:
- Refuse to testify to protect client confidentiality
- Provide honest, objective testimony based on their professional findings (Correct answer)
- Support the client's position in the legal matter
- Recuse themselves because of their prior relationship with the client
Correct answer: Provide honest, objective testimony based on their professional findings
Expert witnesses have a duty to the court to provide honest and objective testimony, which supersedes loyalty to any party in the proceeding.
Question 4: Which practice violates the ethical standard of 'independence' for a gemstone appraiser?
- Using standardized grading scales developed by third parties
- Allowing a client's lender to review the appraisal methodology before completion (Correct answer)
- Consulting with other certified gemologists for peer review
- Using laboratory grading reports as supporting documentation
Correct answer: Allowing a client's lender to review the appraisal methodology before completion
Allowing an interested party such as a lender to influence the appraisal methodology before completion compromises the appraiser's independence.
Question 5: Under USPAP, when must an appraiser update or readdress a prior appraisal if market conditions have significantly changed?
- Never, as appraisals are only valid at the time of inspection
- When a client or intended user relies on the prior appraisal for a new transaction or purpose (Correct answer)
- Only if the appraiser made an error in the original report
- After exactly two years from the original appraisal date
Correct answer: When a client or intended user relies on the prior appraisal for a new transaction or purpose
When market conditions change significantly and a client intends to use a prior appraisal for a new purpose, the appraiser should update or issue a new appraisal to reflect current conditions.
Question 6: Which of the following actions by a CGA would most likely constitute a violation of anti-trust laws?
- Advertising competitive pricing for appraisal services
- Coordinating with other local appraisers to set minimum fee schedules (Correct answer)
- Offering volume discounts to repeat clients
- Publishing transparent fee structures on a business website
Correct answer: Coordinating with other local appraisers to set minimum fee schedules
Price-fixing agreements among competitors, including setting minimum fees collectively, violate antitrust laws such as the Sherman Antitrust Act.
Question 7: A client requests that their appraisal report omit mention of a known chip on the gem to avoid reducing its insured value. The appraiser should:
- Omit the chip if it is minor and below the inspection threshold
- Include all known defects and refuse to omit material facts from the report (Correct answer)
- Add the chip to a separate private memorandum not included in the official report
- Comply if the client signs an indemnification agreement
Correct answer: Include all known defects and refuse to omit material facts from the report
Omitting known defects from an appraisal report is a form of misrepresentation that exposes the appraiser to legal liability and violates professional ethics standards.
CGA Ethics Standards & Legal Compliance 5
What is the ethical significance of maintaining a separation between an appraiser's role as a buyer/seller and their role as an appraiser?