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ACCA Applied Knowledge · Financial Accounting · Duties and responsibilities of those charged with governance

Which of the following is the main purpose of a corporate governance code that operates on a 'comply or explain' basis?

A comply or explain code lets companies depart from a provision as long as they disclose the departure and explain the reasons to shareholders. This gives flexibility, unlike a rules-based approach that demands identical compliance from all companies.

  1. ATo require every company to adopt identical governance arrangements regardless of its size
  2. BTo allow companies to depart from a provision provided they disclose the departure and give reasonsCorrect
  3. CTo remove the need for external audit of the financial statements
  4. DTo make directors personally liable for all company losses

Explanation

Under 'comply or explain', a company may depart from a code provision if it discloses the departure and explains why. It is therefore flexible rather than uniform. It does not replace the audit or impose personal liability for all losses.

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