To reduce agency costs, organizations implement various systems and controls to monitor behavior, including I. Publishing audited financial statements
II. Filing income tax returns
III. Tying financial rewards to reported results
A) I and III only
B) I and II only
C) II and III only
D) I, II, and III

Question

Quizplus · Accepted Answer

Publishing audited financial statements and tying financial rewards to reported results are direct methods to monitor and align the interests of agents with those of principals, thereby reducing agency costs. Filing income tax returns is a legal requirement but not primarily aimed at reducing agency costs.

To Reduce Agency Costs, Organizations Implement Various Systems and Controls