Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What does corporate governance entail?

1. The budget allocation for activities

2. The system of directing and controlling organizations

3. The management of personnel within a business

4. The marketing strategies employed by an organization

The correct answer is: The system of directing and controlling organizations

Corporate governance involves the framework of rules, practices, and processes by which an organization is directed and controlled. This encompasses the relationships among the various stakeholders, including management, the board of directors, shareholders, and other parties involved in the governance of the organization. Effective corporate governance establishes clear roles and responsibilities, promotes accountability, and ensures transparency, which collectively drive performance and risk management in a business. In contrast, the other choices focus on different aspects of business management. The budgeting process applies to financial planning, the management of personnel relates to human resource practices, and marketing strategies pertain to how an organization promotes and sells its products or services. While all these elements are crucial to the success of a business, they do not encapsulate the broader concept that corporate governance represents, which is primarily concerned with the oversight of organizational activities and aligning them with the interests of stakeholders.