Skip to content

ACCA Strategic Professional · Strategic Business Leader · Audit and compliance

Brenmore Ltd operates in a country that has introduced a strict, legally binding code on board audit committees, with penalties for non-compliance, after a major accounting scandal. Its chair argues that the board should simply tick every box in the code. A non-executive director responds that the firm should also build an ethical culture beyond the letter of the law. What is the main weakness of relying only on the rules-based approach that the director is highlighting?

The weakness is that a purely rules-based approach promotes minimal, box-ticking compliance with the letter of the rules and may miss new situations or the intent of good governance. The director wants an ethical culture to fill that gap, while explaining departures belongs to principles-based regimes.

  1. AIt encourages minimal compliance with the letter of the rules and may not cover new situations or the spirit of good governanceCorrect
  2. BIt gives shareholders too much discretion to judge company-specific circumstances
  3. CIt cannot be enforced by regulators or courts
  4. DIt allows companies to explain departures rather than comply

Explanation

Rules-based regimes are enforceable and clear but can lead to box-ticking and loopholes, with the spirit of the rules ignored and gaps for situations not anticipated. Allowing explanation of departures is a feature of principles-based regimes, so the last option is wrong.

Did you get it right without looking?

One question tells you little. A timed set on Audit and compliance shows your real accuracy, how long you take and where you lose marks.

Practise Audit and complianceFree diagnostic mock

More Audit and compliance questions