CPA Exam Lab
Section 2: 15–25%R5

Agency

Exam insight

Agency answers who is bound and who is liable when one person acts for another, a recurring REG theme. The exam keeps coming back to two lines: actual vs. apparent authority, and employee vs. independent contractor.

CPA Exam Lab is an independent study resource and is not affiliated with, endorsed by, or sponsored by the AICPA® or NASBA. Practice questions are original content created for study purposes. “CPA” is a registered trademark of the AICPA.

What AICPA wants you to know

  • 1Explain how an agency relationship is created
  • 2List the duties the agent owes the principal and the duties the principal owes the agent
  • 3Distinguish actual (express and implied), apparent authority, and ratification
  • 4Determine principal and agent liability to third parties under disclosed, partially disclosed, and undisclosed principals
  • 5Apply respondeat superior and the employee vs. independent-contractor distinction
  • 6Identify the methods by which an agency terminates