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.
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.
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 interest than those of their employers, the shareholders.
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 interest than those of their employers, the shareholders.
The
institute of chartered accountants in England & Wales, in November 2006,
put it this way;
institute of chartered accountants in England & 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.
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.
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.
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.
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.
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.
