Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What is the purpose of codes of practice on corporate governance?

1. To provide specific legal regulations for businesses

2. To offer guidance on best practice standards

3. To define penalties for corporate misconduct

4. To standardize financial reporting

The correct answer is: To offer guidance on best practice standards

The purpose of codes of practice on corporate governance is to offer guidance on best practice standards for organizations. These codes provide a framework for companies to establish ethical conduct, accountability, and transparency in their operations. They help organizations understand the expectations of stakeholders regarding governance structures, processes, and behaviors. By adhering to these codes, companies can enhance their credibility, foster trust, and improve their overall performance and sustainability. While other options may seem relevant, they do not accurately capture the primary role of corporate governance codes. Legal regulations, penalties for misconduct, and standardizing financial reporting are usually covered by specific laws and regulations or accounting standards, which serve different functions in the governance ecosystem. The emphasis on guidance allows organizations the flexibility to adopt practices that best fit their unique circumstances while still aligning with overarching principles of good governance.