Association of Chartered Certified Accountants (ACCA) Certification Practice Test

Good corporate governance involves which of the following?

1. Risk management and internal control

2. Maximizing short-term profits

3. Limited stakeholder engagement

4. Employee surveillance

The correct answer is: Risk management and internal control

Good corporate governance is fundamentally focused on promoting accountability, fairness, and transparency in a company's relationship with its stakeholders, including shareholders, management, customers, suppliers, financiers, government, and the community. In this context, effective risk management and internal control are vital components of good corporate governance. They ensure that the organization can identify, assess, and manage potential risks that could impede its operations or lead to losses. This proactive approach not only protects the interests of stakeholders but also enhances the overall financial stability of the organization. By establishing strong internal controls, companies can safeguard assets, ensure the accuracy of financial reporting, and comply with laws and regulations. The other choices either do not align with the principles of good corporate governance or may lead to negative outcomes. Maximizing short-term profits often ignores long-term sustainability and stakeholder interests, limited stakeholder engagement can lead to a lack of transparency and accountability, while employee surveillance raises concerns about privacy and trust within the workforce. Hence, risk management and internal control are critical factors that support the principles of good corporate governance.