Positive Accounting Theory (PAT) assumes that principals are aware that agents will act opportunistically,so principals stipulate in any bonus contract the accounting methods to be applied.This means that:
A) A carefully worded contract is assumed by PAT to remove the potential for the agent to overstate profits.
B) Agents will not be permitted to negotiate elements of the bonus contract relating to the stipulation of accounting methods.
C) While the range of accounting treatments may be reduced, the cost of stipulating all the methods for all circumstances is too high, so there will always be scope for agents to opportunistically select accounting methods.
D) It is more efficient in terms of the assumptions of PAT not to use bonus plans for agents.
E) None of the given Answers.
Correct Answer:
Verified
Q30: An example of political costs under the
Q31: In the situation where a contractual arrangement
Q32: Managers may be motivated to revalue assets
Q33: Various researchers have indicated that when managers
Q34: The rational economic person assumption as it
Q36: Market-based bonus schemes may be considered more
Q37: Creative Accounting:
A) Is a term used by
Q38: Within the principal/agent perspective of PAT,the price-protection
Q39: Problems associated with rewarding managers based on
Q40: The efficiency perspective in PAT research considers:
A)
Unlock this Answer For Free Now!
View this answer and more for free by performing one of the following actions
Scan the QR code to install the App and get 2 free unlocks
Unlock quizzes for free by uploading documents