Accounting Theories Report: Agency, Stewardship, and Liabilities

This report provides an in-depth analysis of key accounting theories, specifically focusing on Agency and Stewardship theories, along with their practical implications in the business world. It begins with an introduction to accounting theories and their significance in financial reporting and corporate governance. The report then delves into Agency theory, exploring its core concepts, the relationship between principals and agents, and the resolution of conflicts. It examines the theory through the lens of three journal papers, analyzing their purposes, findings, implications, and future avenues. Similarly, the report investigates Stewardship theory, detailing its principles, the role of managers as stewards, and its impact on shareholder interests. Two journal papers are reviewed to understand the theory's application, purpose, findings, and future directions. The report also defines liabilities and obligations within the accounting framework and discusses the relationship between legally enforceable claims and liabilities. The conclusion summarizes the importance of accounting theories in fostering business growth and maintaining relationships within companies.

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Accounting Theory
10/10/2019

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Contents
Introduction......................................................................................................................................2
Agency theory..................................................................................................................................2
Details from Journal Paper 1........................................................................................................2
Details from Journal Paper 2........................................................................................................2
Details from Journal Paper 3........................................................................................................3
Stewardship theory..........................................................................................................................4
Details from Journal Paper 1........................................................................................................4
Details from Journal Paper 2........................................................................................................4
Definition of the liabilities and the obligation.................................................................................5
Legal enforceable claim...................................................................................................................6
Conclusion.......................................................................................................................................6
References........................................................................................................................................8

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Introduction
The accounting theories help in operating business functions in an effective way. The accounting
objectives are set up by the Accounting Conceptual Framework which helps in underlying the
financial reporting and financial statements. Accounting theories are the study of both
accounting practices for the historical foundations as well as the regulatory frameworks which
govern financial things. The accounting theories are the conceptual framework which helps the
auditors of the company in preparing and understanding the legible reports. In this report the
theories of accounting will be explained such as agency theory, stewardship theory. Going
concern theory is also used widely in the companies as it helps in taking the responsibilities and
preventing uncertain events in the company.
Agency theory
Details from Journal Paper 1
As per this journal this theory is the relationship between the principals and the agents and of any
conflicts arises in them then this theory resolves it (Clarke, 2014). The agents are the company
executives who have to consider the shareholders which are considered as the principals. For
performing day to day transactions in the company the relationship between the two parties is
required so this theory is the relationship between both principals as well as agent. This theory is
related to the economic and management theory which organizes the relationship in a better way
so that effective working can be done.
Details from Journal Paper 2
As per this journal when any disputes arise then the differences are resolved by this theory. The
balance between the agent and the principal has achieved through performance based
compensation. Generally the disputes between the agent and the principles arise when the agent
who is the entity has to make certain decisions on behalf of the principal which is the other entity
(Hanrieder, 2014). The decision taken by the agents are taken which are acted in their own
interest and this interest is contrary to the principals. In this journal, it is also evaluated that
agency theory is the part of the corporate governance. The directors take the decisions which are

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not in the favor of the shareholders earlier so this theory was made so that best interest of both
directors and the shareholders in the company can be maintained.
Details from Journal Paper 3
In this journal, it is evaluated that agency theory has much importance as the agents of the
company represents the business transactions which are particular to the principal and it was
assumed that the agent is representing the best interest to the with their self-interest to the
principal (Pepper and Gore, 2015). The source of conflict is the different interests of the agents
and the principals. The rules under which the agents operate can be used for the corporate
governance and the interest of the principals can be restored. The principal interest will be higher
when the agents are offered the incentives as it helps them in doing the acts with the interest of
the principal.
Purpose of investigation: This journal is investigated so that what is the concept of the agency
theory can be determined. The purpose is to analyses how agency theory works in the company
and how this theory is effectual in the accounting conceptual framework (Glinkowska and
Kaczmarek, 2015). The details regarding the topic can be determined through the investigation
and the meaning is understood. The investigation is also done to analyses the correct information
and to conclude the results.
Purpose of this theory: After evaluating the journal theory, the purpose of this theory is that
revolves around the relationship between the agents and the principals so the issues arise
between the different goals and objectives can be resolved (Bosse and Phillips, 2016). The
purpose is to leads the problem of the agent-principal and to maintain the relationship between
the shareholders and the executives of the company.
Findings: From evaluating the three journals it was found that the agents perform the functions
which are in best interest for themselves rather than the interest of the company or the principal.
So it creates conflicts in the company (Li, et al., 2016). So this theory is developed to resolve the
issues between the two parties and to maintain their relationship.
Implications and future avenues of the agency theory: There are the many implications and
the problems which have arisen in the theory of the agency such as the conflict of the interest in
the parties (Agoglia, et al., 2015). The stakeholders of the company are conflicted with their

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interest in the management of the company as they want the maximize shareholder return while
the management wants their best interest so this conflict is the biggest issue in this theory which
also creates the problems in the future. This theory is also expensive so authors find difficult to
research things.
Stewardship theory
Details from Journal Paper 1
As per this journal, the theory states that the manager of the company should act as the steward
which has to take care of the needs of the assets. The assets of the company are protected and
controlled by them. The stewards of the company are assumed to be trustworthy, collectivist and
pro organizational (Madison, et al., 2016). This theory also relates to corporate governance
which helps in monitoring the performance regarding the future. The interest of the owners and
the shareholders in the company is protected by this theory. The company executives make some
decisions on behalf of the shareholders of the company in their own interest. The main objectives
are to prosper the shareholder's interest and to make the organization more successful. The
satisfaction of the shareholders is the main objective of this theory and the needs of the
shareholders are communicated to the business leaders so that effectiveness in the company can
be created. The personal gains of any managers or the CEO are put aside and they are
trustworthy who took decisions in the favor of the shareholders (Patrick, et al., 2015).
Details from Journal Paper 2
As per this journal the self-interest was rejected by this theory. as per the Stewardship theory, the
managers seek the benefits of the other side rather than themselves. They give financial benefits
to the shareholders of the company. In this theory it was seeking that the manager of the
company maximizes the profit of the company and performs a good job by giving the high return
to the shareholders (Joslin and Müller, 2016). The managers work not because they are getting
some financial interest but they perform they're dirty at their best. The managers are not isolated
individuals in this theory and their ego and sense of worth are also merged with the reputation of
the company. This theory motivates the company as the working is done in the interest of the
company and the shareholders of the company. While running the business activities this theory
is essential as it complies with the ethics and morals and also interconnected with the stakes of

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the companies and the business operations. This theory also focuses on the effect of corporate
activity and also takes consideration of the governance process.
Purpose of investigation: These two journals are investigated so that meaning and
understanding can be gain related to the stewardship theory. The potential level of theory and its
effect on the company can be analyzed through the investigations. The purpose of the
investigation is to analyses the theories of accounting so that their impact on the company can be
ascertained.
Purpose of this theory: The main purpose of this theory is to motivate the organization to
accomplish its task on time so that more benefits and return can be given to the shareholders
(Duncan and Whittington, 2015). This theory does not work in the interest of self-own but their
main emphasis is on the benefits of the shareholders of the company.
Findings: This theory builds the relationship between the management and the ownership of the
company and works in the interest of the shareholders of the company (Bernstein, et al., 2016).
This theory is majorly related to the morals and ethics of the corporate governance and emphasis
majorly on the interconnection of the business and the management.
Implications and future avenues of the stewardship theory: The main argument is to turn off
self-interest which is the major issue as the managers will not getting any motivation to work in
the benefits of the shareholders. The role of the steward is unrealistic and oversimplified for the
future perspective (Glinkowska and Kaczmarek, 2015). This theory also has a lack of empirical
evidence and they also reinforce the egos of the senior executives which is the major implication.
Definition of the liabilities and the obligation
In general, it is said that all the liabilities are the obligation. If the person owes something then
they have to repay that also. While the business course of actions there were many business
liabilities arises performing the operations of the company. The financial debts in the company
are the obligations between the party who has taken the loan and the other party who is yet not
completed or paid the loan (Koch-Medina, et al., 2015). The liability is considered as the
obligation as per the framework of the accounting because it is the duty of the commitment
which the person has to pay as they are legally bound to pay the liability.

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Obligation can be defined as something that is required to do for something you have taken. If
the person has obtained something then they are legally bound to repay it within the timeframe.
In the accounting framework this term is often used and people rely on this term as it arises from
the borrowing funds which are called liability (Werner, 2014). The person has to pay the money
to another party at a particular time so that financial obligations can be fulfilled. If the person
doesn’t pay the obligation on time then the reputation of the company gets affected and also
impact has been seen in the performance of the company.
Legally enforceable claim
Yes, the liability can exist before the enforceable claim can exist. The liability starts from the day
when the money is taken from the other person. So it is not necessary then the liability exists at
the time period only when the claims have to be made but it exists all the time till the whole
payment if the loans with its claim do not fulfill. The company takes money from the other
person to run the business functions and operations in an effective way so they are also liable to
pay their claims on time (Werner, 2014). If any contract is made which is binding the person
then the other person is obligated to claim it. To maintain the good act in the company,
obligation is the responsibility which so enforceable for the normal business practices. No, it is
not necessary that if a legally enforceable claim exists then liability also exists as sometimes the
liability was paid by the parties but their claims are due. The claims exist legally but it can be the
interest amount but the main liability of the person which is the amount taken is repaid.
Conclusion
From the above report, it is concluded that accounting theories are very essential in accounting as
it helps the marinating the relationship in the companies and also helps in increasing the growth
of the company. In this report the two theories are explained which are Stewardship theory and
the Agency theory. Both theories are different as one relates to the relationship of the agent and
the principal while the other relates to the relationship of the owners and the management of the
company. In this report the obligation meaning is also stated which means something is required
to do for something you have taken and claim is necessary for every liability if it is done with the
legal bindings. So it is evaluated that accounting theories are helpful in running the business
functions in an effective manner.

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References
Agoglia, C.P., Hatfield, R.C. and Lambert, T.A., 2015. Audit team time reporting: An agency
theory perspective. Accounting, Organizations and Society, 44, pp.1-14.
Bernstein, R., Buse, K. and Bilimoria, D., 2016. Revisiting agency and stewardship theories:
Perspectives from nonprofit board chairs and CEOs. Nonprofit Management and
Leadership, 26(4), pp.489-498.
Bosse, D.A. and Phillips, R.A., 2016. Agency theory and bounded self-interest. Academy of
Management Review, 41(2), pp.276-297.
Clarke, T., 2014. The impact of financialisation on international corporate governance: the role
of agency theory and maximising shareholder value. Law and Financial Markets Review, 8(1),
pp.39-51.
Duncan, B. and Whittington, M., 2015. Company Management Approaches Stewardship or
Agency: Which Promotes Better Security in Cloud Ecosystems?. Cloud Comput, pp.154-159.
Glinkowska, B. and Kaczmarek, B., 2015. Classical and modern concepts of corporate
governance (Stewardship Theory and Agency Theory). Management, 19(2), pp.84-92.
Glinkowska, B. and Kaczmarek, B., 2015. Classical and modern concepts of corporate
governance (Stewardship Theory and Agency Theory). Management, 19(2), pp.84-92.
Hanrieder, T., 2014. Gradual change in international organisations: Agency theory and historical
institutionalism. Politics, 34(4), pp.324-333.
Joslin, R. and Müller, R., 2016. The relationship between project governance and project
success. International Journal of Project Management, 34(4), pp.613-626.
Koch-Medina, P., Moreno-Bromberg, S. and Munari, C., 2015. Capital adequacy tests and
limited liability of financial institutions. Journal of Banking & Finance, 51, pp.93-102.
Li, F., Li, T. and Minor, D., 2016. CEO power, corporate social responsibility, and firm value: A
test of agency theory. International Journal of Managerial Finance, 12(5), pp.611-628.

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Madison, K., Holt, D.T., Kellermanns, F.W. and Ranft, A.L., 2016. Viewing family firm
behavior and governance through the lens of agency and stewardship theories. Family Business
Review, 29(1), pp.65-93.
Patrick, E.A., Paulinus, E.C. and Nympha, A.N., 2015. The influence of corporate governance on
earnings management practices: A study of some selected quoted companies in
Nigeria. American Journal of Economics, Finance and Management, 1(5), pp.482-493.
Pepper, A. and Gore, J., 2015. Behavioral agency theory: New foundations for theorizing about
executive compensation. Journal of management, 41(4), pp.1045-1068.
Snippert, T., Witteveen, W., Boes, H. and Voordijk, H., 2015. Barriers to realizing a stewardship
relation between client and vendor: the Best Value approach. Construction management and
economics, 33(7), pp.569-586.
Werner, R.A., 2014. How do banks create money, and why can other firms not do the same? An
explanation for the coexistence of lending and deposit-taking. International Review of Financial
Analysis, 36, pp.71-77.