The demand for auditing can be explained by agency theory as part of monitoring and bonding activities and costs.

Question

Quizplus · Accepted Answer

According to agency theory, the principal hires the agent to act on their behalf, but the agent may have different incentives and goals. Auditing helps to monitor the agent's actions and ensure that they are acting in the best interest of the principal. Additionally, by providing an independent opinion on the accuracy of financial statements, auditing helps to bond the agent to the principal, reducing the risk of fraudulent behavior. As such, the demand for auditing can be explained as part of monitoring and bonding activities and costs.

The Demand for Auditing Can Be Explained by Agency Theory