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

A regulator is considering moving from a detailed list of prohibited actions to a framework of fundamental principles. Which of the following is an advantage of the principles-based approach it would be adopting?

The advantage is that principles can be applied to new and unforeseen situations which detailed rules did not anticipate. Principles-based systems depend on professional judgement, whereas clear advance definition of breaches and ease of enforcement are characteristics of rules-based approaches.

  1. AIt makes compliance easier to enforce because every breach is clearly defined in advance
  2. BIt can be applied to new situations that detailed rules did not anticipateCorrect
  3. CIt removes the need for professionals to exercise judgement

Explanation

Principles are broad enough to cover circumstances that specific rules fail to anticipate. Clear definition of breaches and removal of judgement are features of rules-based systems, not principles-based ones.

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