Delegation

The delegation of control over economic resources from their owners to managers acting as agents is frequently referred to as the 'divorce of ownership and control'. Where control over economic resources is further delegated from managers to the operational levels of the organisation there can be a significant 'divorce of management from operational activity'. In both cases accounting reports communicate vital information about the use of those delegated economic resources up the hierarchy. This information is intended to provide a basis for evaluating the proper use or stewardship being exercised over those resources and will influence future resource allocation decisions.

Information Asymmetry

Delegation is necessary to ensure that those in overall control of the economic resources are able to make strategic resource allocation decisions without being swamped by the need to deal with detailed operational decisions. The detailed information needed to make operational decisions is only available at the operational level, and only aggregated and summarised performance reports find their way up the hierarchy to allow those ultimately responsible for overall control to evaluate the operational decisions taken. Conversely, only those in overall control can view the organisation as a whole and be in a position to co-ordinate overall resource allocation strategies. The term 'information asymmetry' is used to describe the differences in the detail and scope of information at different levels within the hierarchy.