How does an audit of financial statements pertain to agency theory?

Accounting Information Systems
10th Edition
ISBN:9781337619202
Author:Hall, James A.
Publisher:Hall, James A.
Chapter1: The Information System: An Accountant’s Perspective
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How does an audit of financial statements pertain to agency theory? 

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Agency theory is an approach to analysing various relationship in term of principal and agent. The agent is the party acting on behalf of the interest of the principal . Agency theory identifies several problems and solutions that might arise in that relationship.

The principal agent problem refers to the conflict in interests and priorities that arise when one person or entity take action on behalf of another person or entity.

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