Financial Reporting and Ethics - The Institute of Chartered ...

FINANCIAL REPORTING AND ETHICS(c)(d)AgencyBig and Thompson (1966) define ‘agency’ as “the relationshipbetween the principal and the agent. It is usually, though notnecessarily, created by contract between the principal and agentand is then analogous to, but not identical with, the contractbetween a master and a servant. Apart from any express appointmentof an agent, the law itself may impose the relationship of principaland agent with its attendant consequences as, for instance, wherethe doctrine of agency of necessity is applicable. An agent is aperson having express or implied authority to act on behalfof another person, who is called the principal, with theobject of bringing the principal into legal relations withthird parties” (emphasis mine).According to The Chambers Dictionary (2003), a principal is “aperson who, being sui juris, that is, of legal capacity, employssomeone else to do an act which he or she is competent himselfto do.”Horngren (1982) defines ‘costs’ as “resources sacrificed orforgone to achieve a specific objective. The resources may befinancial or non-monetary.”In Chapter 7.1, it is appreciated that a corporation or company is anartificial legal person which can sue and be sued through its accreditedrepresentatives or agents such as board members, top managementand all the people who “call the shots” in the organisation. The corporateperson has “neither body, mind nor soul.” According to Mary Oliver(1971), “corporations cannot commit treason, nor be outlawed, norexcommunicate, for they have no souls. Although, corporations can sueand be sued in their names, it is the board members and / ormanagement who are natural persons and control the destiny of thecompanies, as agents, who stand for them.All the partners of a partnership are agents for one another; each partnercan bind the others in the course of executing contracts on behalf of thefirm. Each partner is a principal and an agent at the same time. Partnersare in a fiduciary position with each other. “They must not only telleach other the truth in conducting the business, but they must disclosethe whole truth.” (Mary Oliver (1971)). Conclusively, partnershiprelationship is “uberrimae fidei,” that is, of utmost good faith.In a consignment business, the person to whom goods are forwarded orconsigned is an agent. He is a representative of the consignor, in goodfaith, and is expected to behave as an ordinary man of business.214