Flight of funds

Topics: Internal audit, Audit, Auditing Pages: 17 (5716 words) Published: November 22, 2013
QUESTION 1: Image you were a director of MTSB in 2006, what would be the steps you would taken to fulfill your fiduciary duties as a director. The steps MTSB have taken to fulfill the fiduciary duties as a director according section 6 of Companies Act, fiduciary duties of a director. Step 1 : Understanding about duties of director

To carry out your duties as a director well, it is necessary for you to be fully aware of the duties and responsibilities expected of directors. Directors are fiduciaries of the company which appoints them. A fiduciary is a person who is expected to act in the interests of another person.Hence, as a director, you have a duty to act in the way you honestly believe to be in the best interest and benefit of the company. The following are some duties of director : To avoid conflict of interest

Under both common and statutory law, a director should not place himself in a position where the interests of the company come into conflict with his personal interest. It is therefore important for you as a director to be familiar with the common circumstances where conflicting interests may arise. It is also necessary for you to be aware of disclosure requirements applicable if you should find yourself in any of these circumstances. To exercise care, skill and diligence

Under both the common law and statutory law, directors are expected to exercise reasonable care, skill and diligence in managing the company.Section 157 of the Act specifically emphasises that directors are required to act honestly and use reasonable diligence in carrying out their duties.The actual skill and experience an individual director possesses is often used as a yardstick to determine the standards that are expected of him. For instance, if a director possesses a higher degree of qualifications or skills, he will be judged by how he applies such knowledge and skills.

To not misuse power and information
a) To not misuse power
Directors have a duty not to misuse their powers. As a director, you should be aware that powers conferred by the Articles should only be used for proper purposes and the benefit of the company. One power that is commonly misused is the power to issue shares, which is normally intended to raise capital. However, if a director issue shares to dilute a member’s shareholdings, gain control of the company, preserve control of the board or prevent a takeover bid, then he has made improper use of his powers as a director. b) To not misuse information

The Act specifically states that an officer of a company should not make improper use of any information acquired by virtue of his position. Hence, as a director, you should use such information only for proper purposes and not to profit or benefit yourself or others.

Step 2 : Dealing with Potential Conflicts of Interest
Next, MTSB’s directors must be aware of the potential for conflicts of interests during his or her tenure on the board. He or she should also consider a range of steps to help insulate his or her decisions and actions from the threat of legal challenges to the greatest extent possible when actions are taken or decisions are made against a backdrop of potential conflicts of interest.

Step 3: To act honestly and in good faith in the interest of the company One of a director’s key fiduciary duties is to act honestly and in good faith for the best interest of the company. It is important for you and your co-directors to give undivided loyalty to the company. Decisions should be made in the interest of the company and any personal or third party’s interests should be disregarded. As a MASB’s director, it is important for him to act honestly at all times when carrying out your duties. When dealing with his co-directors, he should be honest by telling the whole truth and not to hide any material facts. Certain transactions undertaken by directors which are not profitable can still be in the interest of the company. Examples include sponsorships...
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