Agency relationship, Agency conflict and agency costs.

1. Define what is meant by the agency relationship, the agency conflict, and agency costs.

2. Idntify several examples of agency costs and discuss why agents might impose such costs on their principles.

3. Discuss the role accounting and financial reporting might play in assisting the principals to achieve their goal of minimizing agency costs.

4. What are the issues that owners must deal with in requiring managers to prepare financial statements? What can the owners do to help overcome these issues?

Solution Summary

An agency relationship is the delegation of the authority by the principal to its agents to perform certain services on his behalf. A person who has the capacity to carry on any business is called the principal and he delegates certain acts to carry out on his behalf is known as the agent. When the principal agent entered into a contract, it determines the duties to be performed by an agent.

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