POSITIVE ACCOUNTING THEORY

Jimmy is the owner of VRS Pty Ltd. Until recently, Jimmy was also the managing director, but he has decided to employ a manager to take over the daily operations of VRS as he transitions to retirement. The new manager, Beryl, agreed to a performance based contract which says that Beryl will be paid a bonus of $200,000 should the profits exceed a target of $2 million. The contract also says that Beryl must prepare financial statements and have them audited. Briefly define agency theory. According to agency theory, what are the roles performed by Jimmy and Beryl? (3 marks)