The most important relationship of agency exists between shareholders and managers wherein the distinction between owners and the means of controls such as managers exist as shareholder agents acting to take up decisions in their own favor most of which are not even in the shareholder’s interest (Graham et al 2005). There are several issues that therefore develop to cause further differences between the incentives received by the managers and the shareholders with respect to the policies of company inclusive of problem to avert risk and the problem of horizon. The paradigm of principal and agent is situated at the corporate finance industries center. The main problem with respect to subordinate motivation delivers a discrete insight within the problems that encircle debts, equity issues, dividend dilemmas, pay for executives and even regulators. In order to understand what risk aversion is, it becomes clear to understand the basic problem of principal agent which occurs when maximization of efforts is chosen as a decision by the Agent (Graham et al 2005). Therefore, it is required to have cooperation present between the concerned party which can be obtained through formulation of contracts which are employed under the concepts of accounting and measurable considerations (Jensen et al 2009). Accepting the principles of accounting generally helps in relating cost effective solutions for the interest conflict present among the parties.