ACCA Advanced Audit and Assurance (AAA) Practice Exam

What is a key characteristic of non-executive directors?

1. They are involved in day-to-day operations

2. They must be employees of the company

3. They do not have day-to-day operational responsibility

4. They represent significant shareholders

The correct answer is: They do not have day-to-day operational responsibility

Non-executive directors play a crucial role in the governance of a company by providing independent oversight and contributing to board discussions without being involved in the daily operations. This characteristic allows them to offer objective perspectives and challenge management decisions, ensuring that the company operates effectively and in the best interests of all stakeholders. Their lack of involvement in day-to-day operations means they can maintain independence from the company’s management. This separation is vital for effective corporate governance, as it helps mitigate any conflicts of interest that might arise if they were part of the management team. Non-executive directors are typically appointed to provide guidance and assistance based on their experience and expertise, while the executive directors manage the company's day-to-day activities. The other options suggest characteristics that do not align with the role of non-executive directors, thereby reinforcing that this is indeed a key characteristic of theirs.