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ACCA Applied Knowledge · Business and Technology · Corporate codes of ethics

A company's code states only: 'We act with integrity and respect in all dealings.' An employee is offered a modest gift by a supplier and is unsure whether accepting it is acceptable. Which weakness of a principles-based approach does this best illustrate?

This illustrates that principles-based codes can leave uncertainty, because broad statements such as acting with integrity must be interpreted by the individual. The employee has no clear limit on gifts, so decisions may be inconsistent between people.

  1. AIt is too inflexible to adapt to new situations
  2. BIt can leave uncertainty because broad statements need interpretation by the individualCorrect
  3. CIt encourages employees to follow the letter of the rules while avoiding their spirit
  4. DIt is more costly to monitor than any rules-based code

Explanation

Broad principles do not say what level of gift is acceptable, so the employee must interpret them, risking inconsistent decisions. Inflexibility and loophole-seeking (the letter versus spirit problem) are weaknesses of rules-based approaches, not principles-based.

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