Monitoring costs - agency costs, Finance Basics

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Monitoring Costs - Agency Costs

This is incurred to prevent undesirable managerial actions. They are meant to ensure that both parties live to the spirit of agency contract. They ensure that management employs the financial resources of the shareholders with no undue transfer to themselves.

Examples are:

  • External audit fees
  • Legal compliance expenses like example of Preparation of
  • Financial statement according to international accounting standards, company law, capital market authority necessity, stock exchange system or rule etc.
  • Disclosure expenses and financial reporting
  • Investigation fees particularly whereas the investigation is instituted via the shareholders.
  • Cost of instituting a tight internal control system or ICS.

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