agency relationship

A Dictionary of Accounting,  January, 1999  by R. HUSSEY

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agency relationship A relationship in which a principal engages an agent to perform some service on his or her behalf; this involves delegating authority by the principal. As it has to be assumed that the agent will not always act in the best interests of the principal, the principal incurs costs in monitoring and controlling the behaviour of the agent.

In turn, the agent will incur bonding costs in convincing the principal that the interests of the principal will not be harmed. The agent may also take decisions that do not always maximize the welfare of the principal; these ...

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