Question $8$:

Use contracting theory to explain why firms $($i$.$e$.,$ boards of directors acting on shareholders'

behalf$)$ would prefer to allow managers a set of accounting policies $($e$.$g$.,$ GAAP$)$ from

which to choose, rather than to completely prescribe accounting policy choice so that

managers have fixability to choose accounting policies.

Use contracting theory to explain why managers may also prefer to have a choice of

accounting policies.