What steps would you take if you discovered an error in a valuation model used for a client recommendation?

• A. Identify the error, correct data, re-run the model, document changes, inform supervisor, assess impact, and communicate revised recommendation with risk controls
• B. Ignore the error and proceed
• C. Stop the project
• D. Replace the model with guess

Answer: (A)

When you find an error in a valuation model used for a client recommendation, the focus should be on a disciplined remediation and governance process that protects accuracy and client trust. Start by identifying where the error came from and what data or logic caused it, then correct the data or code and re-run the model with the corrected inputs. Validate the results through additional checks, such as sensitivity analyses or backtesting, to understand how material the error was and how the recommendation might change.

Document every change with clear rationale, maintain an auditable trail, and escalate to your supervisor or risk/compliance as needed to obtain proper approvals. Reassess the client-facing outputs, update calculations, and ensure risk controls and model documentation are current. Finally, communicate the revised recommendation to the client, including any material changes and disclosures, and ensure all client materials reflect the corrected analysis. This approach emphasizes accuracy, governance, and risk management; ignoring the error, proceeding without fixes, or guessing at outputs would expose the client and the firm to significant risk.