Page 120 - F1 Integrated Workbook STUDENT 2018
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Chapter 8
Approaches
2.1 Rules based (e.g. US)
A rules-based approach instils the code into law with appropriate penalties for
transgression.
The US model is enshrined into law by virtue of Sarbanes Oxley Act (SOX). It is,
therefore, a rules-based approach.
2.2 Principles based (e.g. UK)
A principles-based approach requires the entity to adhere to the spirit rather than the
letter of the code. The entity must either comply with the code or explain why it has
not through reports to the appropriate body and its shareholders.
The UK model is a principles-based one, although since adherence is part of stock
exchange listing requirements it cannot be considered to be voluntary for large
entities.
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