CPA Agency Theory (Outdated)

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Agency theory is simply one way used to describe how people may behave in a corporate environment.
By referring to agency theory, rules and regulations can be constructed around this expected behaviour to direct outcomes in a way that is likely to be beneficial for all concerned.
Agency theory is a relationship between the agent
and the principal. The agent acts on behalf of the principal.
The term agent generally refers to the executives of the entity
while principal refers to the shareholders or owners.
Agency theory refers to the relationship between agents who are the directors and executives of the entity and principles who are the shareholders and owners. There are two key assumptions that underlie agency theory.
The first assumption is that all individuals are egoists.
This means that everyone is assumed to act in their own self-interest. That is, the agent will act or make decisions that are likely to benefit them and similarly, principals would expect certain actions or decisions that would work to their advantage.
To recap, agency theory is a relationship between agents and principals and there are two important underlying assumptions.