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ACCA Strategic Professional · Strategic Business Leader · Reporting to stakeholders

Kestrel Foods lists in a jurisdiction using a principles-based 'comply or explain' governance code. Its board chair is also the former chief executive, contrary to the code's provision. The annual report states only 'we do not comply with provision 9' with no further comment. What is the most appropriate assessment?

The disclosure is inadequate. Comply or explain permits departure from a code provision, but the company must explain why, describe any mitigating arrangements and indicate whether the departure is temporary. A bare statement of non-compliance gives shareholders no basis for judging whether governance remains sound.

  1. AAcceptable, because non-compliance is permitted under comply or explain without further detail
  2. BUnacceptable, because comply or explain makes every code provision legally binding
  3. CInadequate, because the explanation should give reasons, any mitigating controls and, if temporary, the intended timing of complianceCorrect
  4. DAcceptable, provided the external auditor has signed the financial statements

Explanation

Under comply or explain, departure is allowed, but the company must give a meaningful explanation including reasons and mitigation. A bare statement gives shareholders no basis to judge the departure. Provisions are not legally binding in a principles approach, and the audit opinion is unrelated to this disclosure.

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