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ACCA Strategic Professional · Advanced Financial Management · Financial strategy formulation

A multinational's board is reviewing its financial strategy. Which action would most clearly be an ethical breach of the finance director's duty, as opposed to merely an aggressive but lawful policy?

Delaying disclosure of a covenant breach while selling new shares is an ethical breach because it withholds material information from investors, violating integrity and transparency. Higher gearing, partial hedging and lower dividends are lawful commercial decisions that can be judged on financial merits rather than honesty.

  1. ARaising gearing to exploit the tax shield on debt interest
  2. BChoosing to hedge only transaction exposure and not economic exposure
  3. CDelaying the disclosure of a covenant breach to investors while the company sells new sharesCorrect
  4. DPaying a lower dividend to retain funds for investment

Explanation

Withholding material information about a covenant breach while raising equity misleads investors and breaches integrity and transparency duties. The other options are legitimate financial policy choices that can be debated on commercial grounds but involve no deception.

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