Discuss Two Ways in Which a Shareholder Can Mitigate the Problem

question 1

Essay

Discuss two ways in which a shareholder can mitigate the problem of moral hazard when investing in a company.

---

Definitions:

Standard Cost

A detailed estimate of what a product should cost.

Actual Cost

The actual amount spent on goods, services, or other expenses, as opposed to budgeted or standard costs, including all direct and indirect costs.

Principle of Exceptions

A management principle focusing on identifying and addressing areas that significantly deviate from the norm or expected results, often utilizing reporting and analysis.

Variances

Differences between planned amounts and actual amounts incurred in operations, budgets, or financial projections.