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Which of the following statements is correct? a) Monitoring and bonding arrangements drive agency...

Question:

Which of the following statements is correct?

a) Monitoring and bonding arrangements drive agency costs to zero.

b) Political costs are lower for larger firms.

c) Contracts between managers and outside equity owners or debtholders will specify every accounting method that the firm will use.

d) Agency costs comprise monitoring and bonding costs and a residual loss.

Managerial Accounting

Managerial accounting refers to the collection, analysis, and interpretation of accounting information. It is used by internal users such as managers to make well-informed decisions about the operations and performance of a business. Cost accounting is considered as a subset of managerial accounting.

Answer and Explanation:

Answer: Option d

Agency costs can be defined as the internal costs that an organization incurs. The costs result from the conflict of interest that may arise between the principals of a given organization and the agents. In a given company, the principals refer to the stockholders while the agents refer to the managers. Agency costs can also refer to the cost incurred due to asymmetrical information. Various types of agency costs include residual loss, monitoring, and bonding costs.


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Managerial Accounting Functions

from Business Management: Help & Review

Chapter 9 / Lesson 1
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