Plain Truth Adverting employs KPR, a large accounting firm, to audit its books each year. This involves considerable expense for the advertising firm, since its sales account managers are very independent and each maintains his separate record-keeping systems. Should the CEO at Plain Truth cancel the audit and rely on a brief year-end summary from each sales account manager? Why or why not?
What will be an ideal response?
The audit should probably not be cancelled, especially if sales account managers are rewarded based on sales-related measures. Principal-agent problems could escalate without an audit due to the fact that there is no alternative for monitoring the financials of each account manager. To reduce costs of the audit, a standard record-keeping system can be instituted.
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If a firm can change market prices by altering its output, then it
A. Engages in marginal cost pricing. B. Is a price taker. C. Faces a flat demand curve. D. Has market power.
The price elasticity of demand for a monopolist
A) is infinite since the monopolist is the only firm in the market. B) decreases as more competition occurs in the market. C) increases as similar products enter the market. D) is undefined due to the lack of competition.
Jamal earns $160,000 per year and Josephina earns $80,000 per year. If Jamal pays $16,000 in income taxes and Josephina pays $8,000 in income taxes, the income tax system would be
A) regressive. B) progressive. C) proportional. D) marginal.
In 2003, the Federal Reserve had used its control over the federal funds rate to such a degree that
A. the federal funds rate was the highest it had been in 15 years. B. Congress stripped the Federal Reserve of this authority. C. the federal funds rate was the lowest it had been in 15 years. D. the federal funds rate was driven below zero.