Question

Discuss how one could identify and resolve agency issues that may arrive due to a lack in transparency and the misunderstanding of the agency's relationships and its customer. Using accounting and finance goals how could one relate to such agency problem ? (250words).

Answer 1

In order to resolve the agency problem , the first and foremost important thing is to be transparent and follow complete disclosure of all the activities, agendas and objectives. The principal should be informed about everything by the agent, he cannot take all the decisions himself, Also, it is important to restrict the power of the agent so that he does not exploit it to unfair advantages. Checks and balances play a very important role to help curb corruption. Another important solution to prevent issues between agent and principal is to eliminate incentives. If there is a fixed salary received by the agent, he will have no means to choose options that benefit him and will have to cater to the needs of the principal along with choosing the best option possible. Carrot and stick approach also justifies the conflict resolution process.