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 of the following actions would be most likely to decrease agency costs for the firm?

Allowing managers to make decisions without oversight

Increasing the separation between ownership and management

Implementing stronger internal controls and regular audits

Reducing transparency in financial reporting

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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 (managers). These costs can include monitoring expenses, inefficiencies, or losses caused by managers acting in their own interest rather than the firm's interest.

Evaluate the options provided: Analyze each action to determine its impact on agency costs. For example, allowing managers to make decisions without oversight could increase agency costs due to lack of accountability.

Focus on the correct answer: Implementing stronger internal controls and regular audits helps reduce agency costs by ensuring managers act in the best interest of the firm. Internal controls and audits provide oversight and transparency, minimizing the risk of mismanagement.

Explain why other options are less effective: Increasing the separation between ownership and management could exacerbate agency costs by reducing direct oversight. Similarly, reducing transparency in financial reporting would make it harder for owners to monitor managers' actions, increasing agency costs.

Conclude with the importance of internal controls: Highlight that stronger internal controls and regular audits are essential tools for mitigating agency costs, as they align managers' actions with the firm's goals and ensure accountability.