Agency relationship
An agency relationship arises when a principal delegates authority to an agent to act on the principal’s behalf. In a company, shareholders as owners commonly delegate day-to-day management to directors. Their interests and information may differ, creating a need for reporting, governance and independent assurance.
Worked example
Shareholders appoint directors to run the company and use the audited annual financial statements to assess stewardship.
Common mistake
Do not confuse the management–shareholder agency relationship with a person hired by the auditor.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AA | Direct | September 2026–June 2027 |