CIMA BA4 · Chapter 5 · Question 4 of 10
Which of the following is an example of an agency cost?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) The cost of an external audit commissioned to monitor the directors' stewardship
Explanation
Agency costs are costs incurred by principals to monitor and control agents, plus any loss from agents acting in their own interests. Audit fees, governance structures and incentive schemes are typical examples. Raw materials, interest and advertising are normal business costs not caused by the agency relationship.
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