According to the agency theory, demand for audit is due to conflicts between
A) managers and owners.
B) managers and agents.
C) owners and principals.
D) auditors and owners.

Question

Quizplus · Accepted Answer

The agency theory suggests that conflicts arise between managers (agents) and owners (principals) due to differences in their interests, which can result in managers making decisions that are not in the best interest of the owners. Audits are demanded to provide objective and independent assurance over the financial statements prepared by the management, thereby reducing the information asymmetry and conflict of interest between managers and owners, who are the primary users of financial statements. Therefore, the demand for audit is mainly driven by conflicts between managers and owners.

According to the Agency Theory, Demand for Audit Is Due