The authors of the study state that it will be vital for accounting firms to ensure that partner incentive schemes align incentives with values of the accounting profession. This issue gains greater importance as mid-tier firms adopt such performance-based profit sharing models in their attempts to stay competitive with Big 4 firms because the new incentives they face represent a risk to their culture and values. Although the current models appear to measure and weigh both commercial success and professional values, these models represent a significant change from the past when mid-tier firms used lock-step approaches that incentivized partners to follow professional values. These findings are of interest to accounting firms and regulators as they consider the impact of partner incentive schemes on audit quality.
Coram, P. J., and M. J. Robinson. 2017. Professionalism and Performance Incentives in Accounting Firms. Accounting Horizons 30 (4): 103-123.
In recent years, accounting regulators across the globe (United States, European Union, and United Kingdom) have pushed for greater transparency from accounting firms. In the required “Transparency Reports,” firms conceptually discuss partner compensation. This study examines the actual profit-sharing frameworks in place at accounting firms of various sizes in order to understand partner remuneration in the Big 4 and mid-tier accounting firms in Australia. Particularly, this study addresses the relationship of firm performance to partner remuneration and the commercialism/professionalism trade-off inherent in accounting firms. This study aims to increase our understanding of the two-decade change in how accounting firms design their partner remuneration framework. While traditional profit-sharing schemes consisted of equal shares of profit made to partners, accounting firms are currently utilizing partner performance information in determining profit splits. This trend has given rise to criticism that suggests accounting firms are becoming too commercial—perhaps failing to accomplish their mission in the public’s best interest.
The study interviews nine partners of Big 4 and mid-tier firms in Australia. The mean time spent as a partner was 17.6 years—ranging from 5 years of experience to 27 years. Six partners interviewed had audit experience or were practicing auditors; the remaining three served in “Financial Advisory” or “Private Clients” capacities. Each interview occupied one hour, took place at the respective firm of the interviewee across eight firms, in a one-month period in 2012. Due care was exercised for interviewers to not express opinions that may bias responses given by partners.
http://commons.aaahq.org/groups/e5075f0eec/summary
The article provides a broad summary of prior audit firm culture and governance research with an additional focus on areas for future research. This literature review is important for accounting firms considering or expanding quality-oriented tone at the top initiatives. In addition, this review of accounting firm governance structures includes methods for accounting firms to mold, mentor, manage, train and reward employees to improve firm performance and audit quality.
Jenkins, J.G., D.R. Deis, J.C. Bedard, and M.B. Curtis. 2008. Accounting Firm Culture and Governance: A Research Synthesis Behavioral Research in Accounting 20 (1): 45-74.
This paper summarizes the academic literature related to accounting firm culture and governance. The authors motivate the study as a response to the PCAOB’s intent to revise the standards on accounting firm quality control. The authors argue that recent audit failures demonstrate the potential consequences of the cultural tension in audit firms between revenue generation and quality service. Regulators stress that the “tone at the top” can establish the role of the audit as for the public good rather than as a mere commodity by encouraging objectivity, independence, professional skepticism and accountability to the public. This paper addresses the concern that greed can change accounting firm’s emphasis on delivering professional services to an emphasis on profitability. The authors addressed the following topics:
This paper is based on a literature synthesis prepared by the auditing section of the American Accounting Association (AAA) for the Public Company Accounting Oversight Board (PCAOB).
The authors presented a research overview of several topics based on a review of recent accounting literature. The results of the review were summarized in topical areas relating to culture and governance. The authors also presented a research agenda for each topical area in which they suggested a variety of research issues to stimulate future research. Topical areas include: The Roles of Culture, Conflicts between Organizational and Individual Goals, The Roles of Subcultures within Organizations, Social Influence, Mentoring, Communicating Culture to the Outside, Measuring Culture, Control Mechanisms within Firms, Policies Related to Consultation, Ethics Training, Independent Monitoring Boards.
The authors suggest that their literature review reveals that accounting firm governance is a largely unexplored research topic and that accounting firms have unique ownership structures and operating characteristics in comparison to other large organizations.