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Going-Concern Opinions: The Effects of Partner Compensation Plans and Client Size

Going-Concern Opinions: The Effects of Partner Compensation Plans and Client Size <jats:p>Partner compensation plans in large accounting firms tend to emphasize either local office profits or worldwide firm profits (“small-pool” or “large-pool” firms, respectively) (Trompeter 1994). Some have expressed concern over possible impairment of auditor independence when a small-pool compensation plan is used, and Trompeter (1994) found in an experimental setting that partners in small-pool firms were less likely to require income-decreasing adjustments.</jats:p> <jats:p>We examine, in an archival setting, the association of partner compensation plans and client size with auditors' propensity to issue going-concern audit opinions to stressed clients. We find no evidence that auditors' going-concern reporting decisions were directly affected by partner compensation plans. However, there is evidence of an interaction between partner compensation plans and client size. This interaction suggests that auditors in small-pool firms may be more sensitive to client size than partners in large-pool firms when making certain going-concern opinion decisions.</jats:p> http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png AUDITING: A Journal of Practice & Theory CrossRef

Going-Concern Opinions: The Effects of Partner Compensation Plans and Client Size

AUDITING: A Journal of Practice & Theory , Volume 19 (1): 67-77 – Mar 1, 2000

Going-Concern Opinions: The Effects of Partner Compensation Plans and Client Size


Abstract

<jats:p>Partner compensation plans in large accounting firms tend to emphasize either local office profits or worldwide firm profits (“small-pool” or “large-pool” firms, respectively) (Trompeter 1994). Some have expressed concern over possible impairment of auditor independence when a small-pool compensation plan is used, and Trompeter (1994) found in an experimental setting that partners in small-pool firms were less likely to require income-decreasing adjustments.</jats:p>
<jats:p>We examine, in an archival setting, the association of partner compensation plans and client size with auditors' propensity to issue going-concern audit opinions to stressed clients. We find no evidence that auditors' going-concern reporting decisions were directly affected by partner compensation plans. However, there is evidence of an interaction between partner compensation plans and client size. This interaction suggests that auditors in small-pool firms may be more sensitive to client size than partners in large-pool firms when making certain going-concern opinion decisions.</jats:p>

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Publisher
CrossRef
ISSN
0278-0380
DOI
10.2308/aud.2000.19.1.67
Publisher site
See Article on Publisher Site

Abstract

<jats:p>Partner compensation plans in large accounting firms tend to emphasize either local office profits or worldwide firm profits (“small-pool” or “large-pool” firms, respectively) (Trompeter 1994). Some have expressed concern over possible impairment of auditor independence when a small-pool compensation plan is used, and Trompeter (1994) found in an experimental setting that partners in small-pool firms were less likely to require income-decreasing adjustments.</jats:p> <jats:p>We examine, in an archival setting, the association of partner compensation plans and client size with auditors' propensity to issue going-concern audit opinions to stressed clients. We find no evidence that auditors' going-concern reporting decisions were directly affected by partner compensation plans. However, there is evidence of an interaction between partner compensation plans and client size. This interaction suggests that auditors in small-pool firms may be more sensitive to client size than partners in large-pool firms when making certain going-concern opinion decisions.</jats:p>

Journal

AUDITING: A Journal of Practice & TheoryCrossRef

Published: Mar 1, 2000

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