PHL295H1 Lecture Notes - Sean Avery, Profit Maximization, Creative Accounting
Document Summary
Accounting both argue that ethics within bureaucratic organizations are a response to agency costs hierarchy of business: Vp"s defines what agency cost is: transaction cost by using a hierarchy the sum total of agency cost is monitoring cost + bonding expenditures of the agent(investments to make you look credible) + dead weight costs(invisible to accountants) People claim they can solve problems that they can"t solve) the higher you are, the easier it is to take advantage. Second order agency problems: appeal to authority (taking things in exact wording, failure to document (no keeping of records, failure to assign duties clearly () Destroying records is a second order agency problem. Removal of the control mechanism to moderate the first order agency problem. You cannot create a system of rules that can bypass good will. The key to controlling corporations is to get rid of information assumptions.
