The principal-agent problem in internal controls and corporate governance

The principal-agent problem in internal controls and corporate governance

In your own words, explain the principal-agent problem in detail and how it manifests in the arena of internal controls and corporate governance. The following are some suggestions for issues to cover in your response:

Why are internal controls necessary? How can we evaluate the internal controls of a firm?

What are some typical examples and types of internal controls that we can expect to encounter in a publicly traded firm?

How does the principal-agent problem pertain to risk and the overall outcomes for a firm?

What are some indicators of good governance and what are some indicators of bad governance?

What are some mechanisms that firms can put in place to improve governance? Be sure to discuss internal based mechanisms and market-based mechanisms.

What are some current issues being debated in the arena of corporate governance?

How do alternative models of firm ownership affect the principal-agent problem? How well do they fare as governance mechanisms?

What changes do you foresee to internal controls and corporate governance in the future? Why?