Skip to content

ACCA Applied Knowledge · Business and Technology · Governance in business organisations

Following a major corporate scandal, a country's government passes a law requiring all listed companies to have an audit committee made up solely of independent directors, with fines and director liability for breach. Which statement best describes this regulatory response?

This is a rules-based approach, because the requirement is specific, mandatory and backed by fines and director liability. Principles-based regimes rely on broad guidance and explanation of departures. Paying a fine for breach is not the same as explaining non-compliance under comply or explain.

  1. AIt is a rules-based approach, because the requirements are mandatory and enforced by legal sanctionsCorrect
  2. BIt is a principles-based approach, because it relates to the independence of directors
  3. CIt is a comply-or-explain approach, because companies may accept the fines instead of complying

Explanation

Mandatory, specific requirements backed by legal penalties are the hallmark of a rules-based approach. The subject matter (independence) does not determine the approach. Paying a fine is not an 'explanation' and does not remove the duty to comply, so comply or explain does not apply.

Did you get it right without looking?

One question tells you little. A timed set on Governance in business organisations shows your real accuracy, how long you take and where you lose marks.

Practise Governance in business organisationsFree diagnostic mock

More Governance in business organisations questions