In the Situation Where a Contractual Arrangement Has Been Negotiated

question 38

Multiple Choice

In the situation where a contractual arrangement has been negotiated that provides managers with a bonus based on the profits generated by the entity:

• A) The efficiency perspective identifies this as a way of minimising agency costs by aligning the interests of the principal and the agent.
• B) The opportunistic perspective predicts that managers will seek to adopt accounting methods that best reflect the performance of the organisation.
• C) The underlying premise of PAT is that agents (managers) aim to act in the best interests of the organisation, so the bonus is recognition of those efforts.
• D) Both the efficiency perspective identifies this as a way of minimising agency costs by aligning the interests of the principal and the agent and the opportunistic perspective predicts that managers will seek to adopt accounting methods that best reflect the performance of the organisation.
• E) None of the given Answers.

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