DipIFR Notes - B1. Agency Relationship - aCOWtancy Textbook

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Syllabus B. Elements of financial


statements
B1. Revenue recognition
5/8
B1. Agency Relationship
:
Notes Video Quiz

Syllabus B1)
Specifically account for the
following types of transactions:
(i) Principal versus agent;

Agency
Agency is defined in relation to a
principal. What?! Well all this
means is an owner (principal) lets
somebody run her business
(manager).

The agent is doing this job on


behalf of someone else.

Footballers, film stars etc all have


agents. They work on behalf of the
star. The star hopes that the agent
is working in their best interest and
:
not just for their own commission…

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Principals and Agents

A principal appoints an agent to act


on his or her behalf.
:
In the case of corporate
governance, the Principal is a
Shareholder and the Agents are
the Directors.

The directors are accountable to


the principals

Examples of Agents:

The Chief Executive


(CEO)

Non-executive
directors (NEDs)

The Chairman

Agency Costs

A cost to the shareholder


:
through having to monitor the
directors

Over and above normal


analysis costs

A result of comprised trust in


directors

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Notes Video Quiz

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Syllabus B. Elements Syllabus B. Elements
of financial statements of financial statements
B1. Revenue B1. Revenue
recognition recognition

Exam Standard Repurchase


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