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

Which one of the following actions by a financial manager is most likely to create an agency problem?

Aligning management incentives with shareholder interests through stock options

Distributing accurate and timely financial statements to shareholders

Implementing strong internal controls to prevent fraud

Investing in projects that increase the manager's personal compensation but do not maximize shareholder value

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Verified step by step guidance

Step 1: Understand the concept of an agency problem. An agency problem arises when there is a conflict of interest between the goals of the principal (shareholders) and the agent (management). The agent may act in their own self-interest rather than in the best interest of the principal.

Step 2: Analyze the options provided in the question. Each option represents a potential action by a financial manager. Evaluate whether the action aligns with shareholder interests or creates a conflict.

Step 3: Review the first option: 'Aligning management incentives with shareholder interests through stock options.' This action reduces agency problems by aligning the goals of management with those of shareholders, as managers benefit when shareholder value increases.

Step 4: Review the second option: 'Distributing accurate and timely financial statements to shareholders.' This action promotes transparency and accountability, which helps mitigate agency problems by ensuring shareholders have the information needed to monitor management's actions.

Step 5: Review the fourth option: 'Investing in projects that increase the manager's personal compensation but do not maximize shareholder value.' This action creates an agency problem because the manager prioritizes their own financial gain over the interests of shareholders, leading to a misalignment of goals.