Association of Chartered Certified Accountants (ACCA) Certification Practice Test

Which aspect of good corporate governance is crucial for stakeholder involvement?

1. Strict adherence to financial controls

2. Commitment to risk management and internal control

3. Prioritizing executive decision-making

4. Focusing solely on compliance with laws

The correct answer is: Commitment to risk management and internal control

The aspect of good corporate governance that is crucial for stakeholder involvement is the commitment to risk management and internal control. This is because effective risk management practices ensure that stakeholders are informed and included in decision-making processes that could impact their interests. A robust internal control system helps enhance transparency, builds trust, and encourages stakeholder engagement, as they see that the organization is managing risks effectively and safeguarding their interests. When an organization prioritizes risk management and internal control, it not only helps in identifying and mitigating potential issues but also facilitates communication and collaboration with stakeholders. This involvement is essential as it allows stakeholders to voice their concerns and provide input into the governance process, leading to more informed and responsible decisions. In contrast, while strict adherence to financial controls, prioritizing executive decision-making, and focusing solely on compliance with laws are important aspects of corporate governance, they do not inherently promote stakeholder involvement. Strict financial controls may ensure accuracy and reliability in financial reporting but do not directly engage stakeholders. Similarly, prioritizing executive decision-making can sometimes lead to a top-down approach that excludes input from others, and focusing solely on compliance might address legal requirements without fostering a collaborative governance environment.