Skip to content

ACCA Applied Skills · Financial Management · Stakeholders and impact on corporate objectives

Which of the following is an agency cost borne by shareholders in trying to ensure that managers act in their interests?

Audit fees are an agency cost, because they are a monitoring cost incurred to check that managers are reporting honestly and acting in shareholders' interests. Loan interest, depreciation and dividends are financing or accounting items, not costs of controlling agents.

  1. AInterest paid on a bank loan
  2. BFees paid to external auditors to report on the managers' financial statementsCorrect
  3. CDepreciation of non-current assets
  4. DDividends paid to shareholders

Explanation

Agency costs include monitoring costs such as audit fees, which shareholders incur to check that managers are reporting honestly and acting properly. Loan interest is a financing cost, depreciation is an allocation of asset cost and dividends are returns to owners, so none of these is a cost of controlling managers.

Did you get it right without looking?

One question tells you little. A timed set on Stakeholders and impact on corporate objectives shows your real accuracy, how long you take and where you lose marks.

Practise Stakeholders and impact on corporate objectivesFree diagnostic mock

More Stakeholders and impact on corporate objectives questions