Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

6. Internal Controls and Reporting Cash

Fraud and the Fraud Triangle

Financial Accounting

6. Internal Controls and Reporting Cash

Fraud and the Fraud Triangle

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Multiple Choice

The need to monitor management actions is an example of a(n) (direct/indirect) agency cost. Which type of agency cost does this represent?

Direct agency cost

Sunk cost

Opportunity cost

Indirect agency cost

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Verified step by step guidance

Understand the concept of agency costs: Agency costs arise due to conflicts of interest between principals (owners/shareholders) and agents (management). These costs are incurred to ensure that agents act in the best interest of principals.

Differentiate between direct and indirect agency costs: Direct agency costs are expenses directly incurred to monitor and control management actions, such as audit fees or compliance costs. Indirect agency costs refer to lost opportunities or inefficiencies caused by management not acting in the best interest of shareholders.

Analyze the problem statement: The need to monitor management actions implies that resources are being spent to oversee and ensure proper behavior, which aligns with the definition of direct agency costs.

Clarify the other terms: Sunk costs are past costs that cannot be recovered and are irrelevant to future decisions. Opportunity costs represent the value of the next best alternative foregone. Indirect agency costs, as mentioned earlier, are inefficiencies or lost opportunities due to misaligned interests.

Conclude the type of agency cost: Based on the explanation, monitoring management actions is a direct agency cost because it involves explicit expenses to oversee management behavior.