Because of conflicts of interest between shareholders and management, it is in the interest of shareholders to monitor management's performance through:

The answer is yearly Financial Report reviewed by external (independent) auditor

Explanation:

Agency problem arises due to conflicts of interest between the owners of the company (shareholders) and the agents(management or directors). For example, the shareholders might be interested in retaining the end of the year profit while the directors might want to acquire non-current asset or acquisition of company with the fund.

To monitor the running of the company, shareholders employ external auditor to give opinions on the financial statements prepared by the management. The auditor ascertain whether the financial statements is true and fair and is not materially misstated.

External auditors are answerable to only the shareholders.

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