CPA Exam Lab
Section 2: 15–25%R5

Agency

Exam Insight

Agency determines who is bound and who is liable when one person acts for another — a recurring REG theme. The exam loves the line between actual and apparent authority and between an employee and an independent contractor.

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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