ACCA Applied Knowledge · Financial Accounting · Duties and responsibilities of those charged with governance
Which of the following circumstances would MOST seriously threaten the independence of a non-executive director of a listed company?
A director who was the company's finance director only two months ago is least independent. Governance codes treat recent former employees, especially executives, as non-independent because they would be scrutinising decisions and systems they were recently responsible for, which undermines objective challenge.
- AThe director holds a small number of shares purchased on the open market
- BThe director was the company's finance director until two months agoCorrect
- CThe director sits on the board of a charity unrelated to the company
- DThe director has a degree in a different field from the company's business
Explanation
Governance codes treat a recent former employee, especially a former executive director, as not independent, since the individual would be reviewing decisions and systems they were recently responsible for. A small shareholding, unrelated charity role or different qualification does not by itself compromise independence in the same way.
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