Home Solutions Have Peter and Jane breached their duty of care to IPO in preparing or endorsing its 2016 financial report?
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Law of Business Associations 8508 Written Assignment
This assignment accounts for 20% of your final score in this unit. It can be undertaken as an individual or group assignment by two students. Where the assignment is undertaken as a group assignment, the same mark will be awarded to each group member.
If you are undertaking this assignment as an individual assignment, you only need to answer Question 1. Otherwise, you need to answer both Questions 1 and 2. The word limit for your answer to each question is set out at the end of the questions.
All written work submitted in this subject must be referenced in accordance with the Australian Guide to Legal Citation (3rd edition), a copy of which can be accessed via this link: https://www.law.unimelb.edu.au/files/dmfile/FinalOnlinePDF-2012Reprint.pdf
The first page of each assignment submission should include the following information:
Where the assignment is undertaken as a group work, a written statement confirming that each student has contributed equally to the completed work needs to be attached to the end of your assignment.
The assignment must be submitted online via Moodle no later than the due time. Where the assignment is completed as a group assignment, you shall submit only one copy of the assignment, with the names and student numbers of both group members specified on the first page. You must retain a copy of any written work submitted for assessment.
Please note the following when answering a legal problem question:
a) You should not summarise the facts at the beginning of your answer. Go straight to identification of the main issues.
b) You need to give legal authority for each legal principle you state in your answer. Wherever possible, you should rely on primary, rather than secondary, sources of law (i.e. cases and legislation rather than texts and journals).
c) Your assignment must have footnotes and a bibliography listing the cases, books and or journal articles you used in preparing the answer.
The Assessment Criteria are as follows:
Demonstrated knowledge of the law
Analytical skills(legal problem solving technique)
The Assignment Problem
IPO Insurance Ltd (IPO) is a medium-sized general insurance company listed on the ASX. Its main business is conducted in Brisbane and surrounding regions and an important arm of this business is the insurance of houses, farms, cars and other vehicles against property damage. IPO has been performing poorly and the directors are hoping to interest BMP, a major player in the Australian general insurance industry in either merging with IPO or acquiring its business. For this to happen, IPO will need to show improving profit results in the year ending 30 June 2016. A meeting of the board is due to be held on 10 August 2016 to adopt the company’s financial report for the 2015-2016 financial year.
The directors have delegated the responsibility for preparing the company’s financial report to Peter, the Chief Financial Officer (CFO) who is also an executive director of IPO. Peter is a qualified chartered accountant with extensive commercial experience, having acted as the CFO of several listed companies.
In preparing the financial report, Peter is aware that he must consider the impact on current year profits of a major flood that swept through a large part of Brisbane in February, causing extensive damage to many houses, farms and vehicles. In order to do this, Peter relies on the advice of Belinda, a senior property damage assessor engaged by IPO from Regal Insurance Assessors Pty Ltd. Belinda is a long standing friend of Peter. She is also aware of the company’s precarious position and unknown to Peter, chooses to disregard a large number of significant recent claims that fall within the current financial reporting period.
On 1 August 2016, prior to the scheduled board meeting, Peter meets with the board’s audit committee. Jane, a non-executive director and Chair of the board’s audit committee, is surprised to hear the relatively low impact of the flood on the company profits. She asks Peter whether he has taken into account the most up-to-date figures on damage claims. Other audit committee members were relieved to hear from Peter that the potential losses do not seem as significant as they had anticipated. In these circumstances, Peter does not feel it necessary to pursue the provision he has made in his report for future claims associated with the flood damage. He signs off on the final financial report.
Peter’s financial report is tabled at the board meeting on 10 August 2016. The figures in the financial report suggest that the company is able to return a small profit in the current year. Jane is still concerned whether the financial report takes into account the most up-to-date figures on damage claims. However, mindful of the company’s difficult financial position, Jane endorses the report, relying on Peter’s response to her at the audit committee meeting.
In the light of Jane’s endorsement, the board resolves to accept and adopt the financial report. The board is dismayed to learn later that flood damage claims have been significantly understated and that IPO has in fact incurred a substantial loss in 2016. When the loss figures are revealed in the media, IPO’s share price plummets. Shareholders are threatening a legal action against the company as they believe that IPO directors have breached their duty of care to the company.
Have Peter and Jane breached their duty of care to IPO in preparing or endorsing its 2016 financial report?
Have the other board members discharged their duty of care to IPO in adopting IPO’s 2016 financial report?
If you are completing this assignment as an individual assignment, answer Question 1. The word limit for your answer is 1200. If you are completing this assignment as a group assignment, answer both Question 1 and Question 2. The word limit for your assignment is 1700. These maximum word limits will be strictly enforced.