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    PracticeACCAACCA FA — Financial Accounting Practice Exam 4Question 02
    Easy2 marksMultiple Choice
    The Context and Purpose of Financial ReportingSyllabus ACorporate Governance

    ACCA · Question 02 · The Context and Purpose of Financial Reporting

    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:

    A.

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

    B.

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

    C.

    To guarantee that the financial statements contain absolutely no errors.

    D.

    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.
    Question 01All questionsQuestion 03

    Practice the full ACCA FA — Financial Accounting Practice Exam 4

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