MetroGrid Water, a public utility company, is preparing its annual financial statements. Which of the following best describes the primary purpose of corporate governance in this context?

Answer options:

To maximize short-term dividends for shareholders at the expense of infrastructure investment.

To ensure the company is directed and controlled in the best interests of its stakeholders.

To guarantee that the financial statements contain absolutely no errors.

To eliminate the need for an external audit.

How to approach this question

Recall the standard definition of corporate governance from the Cadbury Report or similar frameworks.

Full Answer

B.To ensure the company is directed and controlled in the best interests of its stakeholders.✓ Correct

Corporate governance is defined as the system by which companies are directed and controlled. It provides the structure through which the company's objectives are set, and the means of attaining those objectives and monitoring performance are determined, ultimately protecting stakeholder interests.

Common mistakes

Confusing governance strictly with financial accuracy or audit functions.

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Practice the full ACCA FA — Financial Accounting Practice Exam 4

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