Agency theory suggests that one way to motivate managers to act in the best interests ofthe owners/shareholders is to link managerial compensation to firms' payoffs, such as netincome or share returns. However, such a linkage imposes risk on the manager.Required:(1) Why is it important to control or reduce some of the risk thus imposed onmanagers? Explain. Discuss two methods by which risk imposed on the managerscould be reduced.

Here discuss about the details of the agency theory which act against disputes and problems which…

Answered: Agency theory suggests that one way to…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter9: Responsibility Accounting And Decentralization

Section: Chapter Questions

Problem 2MC: Which of the following does not describe a management control system? A. establishes a companys...

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Which of the following does not describe a management control system? A. establishes a companys strategic goals B. implements a companys strategic goals C. monitors a companys strategic goals D. a system that only measures profitability
Which of the following is/are correct regarding agency costs? 1. Indirect costs occur when managers, acting to minimize the risk of the firm, forego investments shareholders would prefer they take. II. Direct costs occur when shareholders must incur costs to monitor the manager's actions. III. Direct costs occur when managers buy assets considered necessary by the firm's owners. Select one: O a. I, II, and III O b.ll only O c.Il and IIl only O d.lonly O e.l and II only
agency costs may occur if A. Managers make decisions for their own best interest B. Managers may not attempt to maximize the value of the firm to shareholders C. The board does not properly oversee the activities and decisions of managers D.all of the above
Making managerial pay contingent on measures of managerial and/or firm performance motivates them to deliver good performance for shareholders. However, it also burdens them with greater risks than they may like. How do organizations balance these two considerations when choosing managerial pay and performance measures?
Which of the following best describes the potential impact of business risk on Earnings Quality? Select one: a. Business risk is mostly composed of financial risk factors and it has minimal effect on earnings quality. b. Higher earnings quality is linked with companies more insulated from business risk. While business risk is not primarily a result of management’s discretionary actions, this risk can be lowered by skillful management strategies.' c. A higher level of earnings quality can be observed in the industries with high business risk, because higher risk means higher returns d. For managing business risk, the managers almost have no discretion, therefore business risk is not directly or indirectly related to earnings quality.
What are accruals? How much control do managers have overaccruals?
Use the opportunistic perspective of PAT to explain the potential for managers to manipulatecorporate disclosure.
What contribution can non-ﬁnancial performance management make to our understanding of management control within organizations?
Profit maximisation will lead to; a.Inequalities among the shareholders b.Corrupt practices c.Ownership - Management controversy d.Exploiting workers and consumers
what does it mean to say that managers should maximize shareholders wealth subject to ethical constraints?
Which of the following is an example of the agency problem? a. Managers always invest in projects that have appropriate returns and that will increase shareholder wealth. b. Managers resign when they believe they have not always acted in the best interests of shareholders. c. Managers conduct an acquisition program purely to increase the size of an organisation. d. Managers look for new projects as they want to avoid business risk. Clear my choice
Both financial and nonfinancial performance measures are key inputs when evaluating the performance of managers. a. true b. false

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