The Principal-Agent Problem Occurs

question 4

Multiple Choice

The principal-agent problem occurs:

• A) when the principal has less information than the agent.
• B) when the principal has more information than the agent.
• C) when the agent has less information than the principal.
• D) not observed in reality.

---

Definitions:

Qualitative Characteristics

The attributes that make the information provided in financial statements useful to users, such as relevance and reliability.

Comparability

The quality that allows users to analyze trends in financial data across different time periods within a company or compare financial data across companies.

Understandability

Understandability in accounting means financial information should be presented clearly and concisely, making it easy for users to comprehend.

Conceptual Framework

An underlying structure in various fields that outlines principles and concepts for systematic study or analysis.