Abstract
The major purpose of this article is to analyze the role of the "Agency Theory" in implementing effective control mechanisms. In effect, various control paradigms under the following situations are elaborated: a) When the agent's control system is merely based on the output under the condition of uncertainty; b) When the control mechanism is based on the output, and information about agent's action or effort; c) When the agent's monitoring control is based on the output, agent's action and additional variables. It is concluded that agency theory posits different organizational, behavioral, economical and controlling roles, and it is a potent framework which can be extricated in promulgation of the management control systems. Furthermore, the implementation of a control mechanism depends on the amount and contents of the public and/ or private information that exist in the domain of the managerial accounting system. The disseminated information and the concurrent variables surrounding the agency relations are also vital elements in creating any control system. Finally, the optimal control mechanism under each preceding conditions are revealed. Key words: Agency theory, management control, accounting information systems, information asymmetry.
Highlights
According to the management accounting literature (Zimmerman, 2010; Kaplan and Atkinson, 2012; Horngren, et al, 2012) one of the significant functions and responsibilities of the managers is exerting control over the firms' operations and resources
No other theories is as rich as the agency theory in explaining the reasons for developing managements' control systems, considering their elements, and how they can be effective established in various organizations
The major purpose of this study was to extricate the role of the agency theory in implementing management's control system
Summary
According to the management accounting literature (Zimmerman, 2010; Kaplan and Atkinson, 2012; Horngren, et al, 2012) one of the significant functions and responsibilities of the managers is exerting control over the firms' operations and resources. A suitable management accounting system should dovetail the "planning" and "control" system in such a manner to provide information concerning accountability, and feedback information to ensure that the company adapts the internal and external organizational and environmental changes, the employees' behavior, and measurement of the firm's variances from the actual operations. The feedback is the central focus of the control system since it obtains information from the strategic planning process and from the standards and budgets- element that makes it possible to compare actual results with standards and budgets and to determine concurrent variances. The final step of the control cycle leads to assimilating relevant information for Strategic
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