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serious regulatory breaches
, for 
example misapplying investors' monies.

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PART B: BUSINESS ORGANISATION STRUCTURE, FUNCTIONS AND GOVERNANCE 
 
184
 
2.4 Reports on corporate governance
A number of reports have been produced in various countries aiming to address the risk and problems 
posed by poor corporate governance. 
2.4.1 US 
In the US, corporate scandals have led to the Sarbanes-Oxley Act 2002. The Act established the Public 
Company Accounting Oversight Board (PCAOB). Its aim is to protect investors and other stakeholders by 
ensuring that the auditor of a company's financial statements has adhered to strict guidelines. While this 
applies chiefly to US auditing firms, the principle of 
public oversight
is applicable to other countries in 
that regulation of the auditing profession (whether through registration and inspection, or self-regulation) 
is seen as very important, both in improving audit quality and emphasising the importance of 
compliance with standards in a company's control environment (Deloitte, 2002).
QUESTION 
Codes of practice
 
In most countries, what is the usual purpose of codes of practice on corporate governance? 
A 
To establish legally binding requirements to which all companies must adhere 
B 
To set down detailed rules to regulate the ways in which companies must operate 
C 
To provide guidance on the standards of best practice that companies should adopt 
D 
To provide a comprehensive framework for management and administration 
ANSWER 
C 
A principles-based approach (rather than a rules-based approach) is normally used in codes of 
practice, so the words 'legally binding' and 'detailed rules' should have told you that options A and 
B were incorrect. Corporate governance standards are set at the highest level in an organisation, 
so option D is incorrect, as it refers to lower levels of management and administration.