Association of Chartered Certified Accountants (ACCA) Certification Practice Test

Which aspect is generally considered beneficial in corporate governance?

1. Domination by a single individual

2. Inadequate involvement of the board

3. Independent scrutiny

4. Emphasis on short-term profitability

The correct answer is: Independent scrutiny

Independent scrutiny is widely recognized as a fundamental aspect of effective corporate governance. It involves having an impartial evaluation of the company's operations, financial reporting, and overall management practices. This independence helps to ensure transparency, accountability, and the integrity of information presented to stakeholders, including shareholders, regulators, and the public. With independent scrutiny in place, auditors or independent directors can offer unbiased assessments and challenge decisions made by management, which promotes a culture of objectivity and mitigates risks associated with conflicts of interest. This aspect is essential for maintaining trust in corporate governance structures, as it helps to prevent fraud and promote ethical conduct within the organization. In contrast, domination by a single individual undermines governance by concentrating power and decision-making, which can lead to a lack of checks and balances. Inadequate involvement of the board limits its effectiveness in overseeing management and making informed decisions. An emphasis on short-term profitability can detract from the sustainable growth of the company, risking the long-term interests of stakeholders for immediate gains. Thus, independent scrutiny stands out as a crucial element that enhances accountability and supports sound decision-making in corporate governance.