Topic 1 Accounting and Agency Theory Flashcards
What is a theory?
A theory is a proven explanation that is based on a body of evidence.
What is a hypotheses?
A hypothesis is a prediction that can be tested through experimentation and observation. An educated guess.
What is a postulate?
Is a statement assumed to be true without proof.
What is a theorem?
A theorem has been proved to be true and is based on logic. Pythagorus Theorem.
What are the 2 aspects to a theory?
Postive fact - can be verified through observation and evidence. It is objective. It is how it is.
Normative opinion - is about what should be rather than what is. It is subjective and based on beliefs and values.
What are the 2 aspects to a hypothesis?
Null hypothesis - is the default assumption that there is no effect or no relationship between variables.
Positive hypothesis - suggest a certain effect or relationship exists between variables.
What is a paradigm shift?
When there is a fundamental change in the underlying assumptions or theories of particular field.
What is an opinion statement?
Any statement that cannot be tested against facts.
Is a lie a false statement? T / F
True
What is a fact statement?
Any statement or prediction that can be tested right now.
What is law?
It prescribes what is allowed and what a country recognises as legal ownership. It governs.
What is economics?
It is concerned with how we acquire assets and how we use them.
What is agency theory?
It examines the relationship between principles (owners) and agents (managers). It assumes managers act in their own interests.
What are bonding costs?
It is when the managers financial health is tied directly to the health of the entity.
Why do agency costs occur?
Because the owner’s and managers interests are not aligned.
