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?
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6. Internal Controls and Reporting Cash
Fraud and the Fraud Triangle
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All of the following are factors that led to the poor financial condition of the Bakery Barn, EXCEPT:
A
Implementation of strong ethical policies
B
Opportunity due to weak internal controls
C
Rationalization of unethical behavior
D
Pressure to meet loan covenants
Verified step by step guidance1
Understand the context of the question: The problem is asking which factor is NOT a reason for the poor financial condition of the Bakery Barn. This is a conceptual question related to financial accounting and ethics.
Review the provided options: The options include 'Implementation of strong ethical policies,' 'Opportunity due to weak internal controls,' 'Rationalization of unethical behavior,' and 'Pressure to meet loan covenants.'
Analyze each option: Consider how each factor could impact the financial condition of a business. For example, weak internal controls, rationalization of unethical behavior, and pressure to meet loan covenants are commonly associated with financial mismanagement or fraud.
Focus on the exception: The option 'Implementation of strong ethical policies' is a positive factor that typically improves financial health and reduces the risk of unethical behavior, making it the exception in this context.
Conclude the reasoning: Based on the analysis, the correct answer is the factor that does not contribute to the poor financial condition, which is 'Implementation of strong ethical policies.'
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