ACCA Applied Knowledge · Business and Technology · Governance in business organisations
Which of the following best describes a principles-based approach to corporate governance?
A principles-based approach gives companies broad principles to follow, and where they depart from them they must explain why. This is the 'comply or explain' basis. It differs from rules-based regimes, where detailed requirements are mandatory and breaches bring penalties.
- ACompanies must follow detailed, legally enforced rules and are penalised for any breach
- BCompanies are given broad principles and may comply or explain any departures from themCorrect
- CCompanies are free to ignore governance guidance without giving any reasons
Explanation
A principles-based approach sets out broad principles and expects companies to apply them, usually on a 'comply or explain' basis. The first option describes a rules-based approach. The third is wrong because explanation of non-compliance is required.
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