Agency is the name given to the practice by which
productive resources owned by one person or group are managed by another person
or group of persons.
productive resources owned by one person or group are managed by another person
or group of persons.
At it simplest agency theory is the recognition
that the inclination of agents, in this case directors or managers of the
business, is to as act rather more in their own
that the inclination of agents, in this case directors or managers of the
business, is to as act rather more in their own
interest than those of their
employers, the shareholders.
The institute of chartered accountants in England
& Wales, in November 2006, put it this way;
& Wales, in November 2006, put it this way;
In
principal the agency model assumes are trustworthy and if they can make
themselves richer at the expense of their principals they will. The poor principals,
so the argument goes, has no alternative but to compensate the agent well for
their endeavors so that they will not be tempted to go into business for
themselves using the principal’s assets to do so.
principal the agency model assumes are trustworthy and if they can make
themselves richer at the expense of their principals they will. The poor principals,
so the argument goes, has no alternative but to compensate the agent well for
their endeavors so that they will not be tempted to go into business for
themselves using the principal’s assets to do so.
The
origin of auditing goes back to times scarcely less remote than that of
accounting… whenever the advance of civilization brought about the necessity of
one man being entrusted to some extent with the property of another the
advisability of some kind of check upon the fidelity of the former would become
apparent.
origin of auditing goes back to times scarcely less remote than that of
accounting… whenever the advance of civilization brought about the necessity of
one man being entrusted to some extent with the property of another the
advisability of some kind of check upon the fidelity of the former would become
apparent.
Clearly this is not universally true, but the
extent to which principals don’t trust their agents will tend to determine the
level of the monitoring mechanisms created for the over-view of agents’
activities and the extent to which agents’ compensations levels are determined
to be acceptable.
extent to which principals don’t trust their agents will tend to determine the
level of the monitoring mechanisms created for the over-view of agents’
activities and the extent to which agents’ compensations levels are determined
to be acceptable.
Upon this principle rests the foundation of not
only the auditing profession, but ultimately, in the latter part of the twentieth
century and the early part of the twenty-first, the establishment of modern
corporate governance.
only the auditing profession, but ultimately, in the latter part of the twentieth
century and the early part of the twenty-first, the establishment of modern
corporate governance.