Skip to content

ACCA Applied Knowledge · Financial Accounting · Duties and responsibilities of those charged with governance

Which one of the following is a statutory-style duty of a director that is most clearly breached in the situation described? Mr Lee, a director of Talon Co, secretly negotiates a supply contract with Talon Co's customer through his own private company and keeps the profit of $40,000 without telling the board.

Mr Lee has breached the director's duty to avoid conflicts of interest and not to make a secret profit from his position. He diverted a company opportunity to his own business without disclosure, so the profit may be recoverable by Talon Co.

  1. AThe duty to avoid conflicts of interest and not to make secret profit from the positionCorrect
  2. BThe duty to prepare consolidated financial statements
  3. CThe duty to appoint the external auditor personally
  4. DThe duty to pay dividends out of all available profit

Explanation

Mr Lee has used his position to earn a personal profit through a related private company without disclosure, which breaches the duty to avoid conflicts of interest and not to profit secretly. Consolidation, auditor appointment and dividend payment are not duties engaged by these facts. Directors owe duties to the company, and any secret profit may have to be accounted for to it.

Did you get it right without looking?

One question tells you little. A timed set on Duties and responsibilities of those charged with governance shows your real accuracy, how long you take and where you lose marks.

Practise Duties and responsibilities of those charged with governanceFree diagnostic mock

More Duties and responsibilities of those charged with governance questions