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

A listed company's board is debating whether to adopt a rules-based or a principles-based approach to its code of ethics. Which statement about a principles-based code is correct?

A principles-based code relies on staff applying broad values to the situation in front of them. This makes it flexible for varied or new circumstances, but it depends on sound individual judgement and a supportive culture, unlike a rules-based code that tries to specify every case.

  1. AIt lists a rule for every conceivable situation, so judgement is never needed
  2. BIt relies on staff applying broad values to the circumstances, which suits varied and new situations but depends on sound judgementCorrect
  3. CIt cannot be used alongside any formal policies
  4. DIt removes all individual responsibility because the company decides everything

Explanation

A principles-based code sets broad values and expects individuals to apply them, giving flexibility for new situations but relying on good judgement and a strong culture. A rule for every situation describes a rules-based approach, and a principles-based code does not remove personal responsibility or preclude policies.

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