Kling Investments Ltd (Kling) is a large company that has the majority of its capital invested in
Question:
Kling Investments Ltd (Kling) is a large company that has the majority of its capital invested in the financial services sector, mainly insurance businesses.
The accounts department of Kling produced the current annual balance sheet and profit and loss figures for the financial year. The accounts department also produced a draft report to shareholders explaining the balance sheet and profit projections for the coming year. Both reports were considered and approved at the board of directors meeting. Most of the work for the reports was done by Melissa, who is in the final year of her commerce degree.
The profit projections prove to be inaccurate as the insurance businesses that Kling has invested in suffer large losses due to huge payouts for property damage insurance due to floods and fires. Melissa was unaware of the profit downgrades in the insurance businesses because this was not her job.
Melissa was also unaware that a large sum of money, approximately $4,000,000 due to the Australian Tax Office should be included as a current liability. This resulted in the current profit and the current balance sheet being overstated.
Shareholders are grumbling and the board of directors are concerned about potential liability for approving the financial statements. Advise the board on the following matters:
- Would the board be in breach of s 180 of the Corporations Act?
- Would the board be able to successfully rely on s 189 of the Corporations Act as a defense?
- Would the board be able to successfully rely on s 190 of the Corporations Act as a defense?
Basic Business Statistics Concepts and Applications
ISBN: 978-0132168380
12th edition
Authors: Mark L. Berenson, David M. Levine, Timothy C. Krehbiel