Skip to content

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

Which statement best describes a principles-based approach to corporate governance regulation?

A principles-based approach gives companies broad governance principles and lets them decide how to apply them, usually on a comply-or-explain basis. Departures are permitted if explained. A rules-based approach instead imposes detailed mandatory requirements with penalties for breach.

  1. ACompanies must follow detailed rules and face penalties for any breach
  2. BCompanies are given broad principles and must apply them, explaining any departure from the codeCorrect
  3. CCompanies are exempt from governance requirements if they are small
  4. DCompanies are only required to follow rules set by their own shareholders

Explanation

A principles-based approach sets out broad principles and gives companies flexibility in how they comply, usually through a 'comply or explain' requirement. Option A describes a rules-based approach, which is prescriptive and enforced by law with penalties.

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