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The three board members implicated in this case each own 150 000 shares - NSC Accounting - Question 4 - 2024 - Paper 1
Question 4
The three board members implicated in this case each own 150 000 shares. Calculate the loss that Loma and the two directors each were able to avoid by selling their ... show full transcript
Worked Solution & Example Answer:The three board members implicated in this case each own 150 000 shares - NSC Accounting - Question 4 - 2024 - Paper 1
Step 1
Explain why the text message is so important to the investigators.
Answer
The text message is crucial to the investigators because:
- It provides evidence that a crime has been committed, which in this case is insider trading. Investigators can trace the communication and establish a link between the involved parties.
- The message may contain sensitive information which reveals intent and allows the investigators to collect necessary evidence that could strengthen the case against individuals involved.
Step 2
Explain why you think this crime is referred to as 'insider trading'.
Answer
This crime is referred to as 'insider trading' because:
- It involves the unauthorized buying and selling of shares based on non-public, material information. This allows those involved to make profits based on information not yet available to the public.
- Typically, the directors or insiders have access to critical information that could influence stock prices, and trading on this sensitive information is considered a breach of trust and ethics.
Step 3
Explain how the rapid decline in the share price and the fraudulent financial statements are likely to affect the existing shareholders and its workers.
Answer
The effects on existing shareholders and workers include:
- Existing shareholders are likely to experience a significant loss in the value of their investments. Many may sell their shares, leading to a lower demand in the market.
- Workers could face job loss due to the company's declining performance. This could result in salary reductions, layoffs, or changes in employment benefits as the company tries to cut costs to stabilize its financial situation.
Step 4
If you were a shareholder in Gadram Ltd, what other questions would you raise at the AGM? Explain TWO points.
Answer
If I were a shareholder, I would raise the following questions:
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What measures are being taken to address the issue of insider trading and ensure misconduct does not recur? The shareholders deserve to know about the accountability measures put in place.
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How will the board assure stakeholders that the financial statements are now being accurately reported and that true performance metrics are being shared? This is paramount for restoring trust and ensuring future investments.