Q. Which of the following regarding residual loss is correct?
A. Bonding costs do not have an effect on residual loss.
B. Residual loss is incurred by the agent because an agency relationship exists.
C. Under agency theory, residual loss can be reduced to zero by good governance.
D. A reduction in residual loss is likely to be the result of an increase in monitoring costs.
Answer: A reduction in residual loss is likely to be the result of an increase in monitoring costs.
