A Research Of Partner’s Internal Governance Mechanism In Accounting Firms

CPA firms formed a set of organization system and management methods which is different from the general company’s through long-term exploration. This system is known as the partnership system of organization and management methods. It also spurs the partners in accounting firm, so that they can lead the whole transaction in the complex economic situation development.After the reform and opening up, accounting firms in China had a recovery. Then after thirty years of development, part of the accounting firms are eliminated, but there are still a lot of firms standing out from the competition, and these firm’s practice level continuously improve, their business scales expand, finally they are near by the “BIG FOUR”. To become bigger and stronger, China’s local accounting firms need to draw lessons from foreign successful governance mechanism and to combine with their own characteristics to find out a set of internal governance mechanism of their own.The accounting firm’s internal governance mechanism is little known, so in domestic academic circles, the theoretical analysis and practice of the internal governance research is not deep enough. This kind of situation will make accounting firms lack of effective organization system and management methods, it’s not conducive to the sustainable development of firm. Therefore, in this paper, on the basis of the present review of domestic and foreign research, firstly we make a theoretical analysis in the aspect of professional services companies, corporate governance theory, human capital property right theory, and we find that firm human capital of this kind of professional organization can only be motivated but not be squeezed. Meanwhile, we introduce the autonomous governance theory to analysis applicability of the theory.Secondly, we analysis the source of power, introducing four ways of firm power allocation and evaluate the four ways. Third, this paper analyzes the influence of the problem, which is between generations and human capital investment on the accounting firm’s profit distribution system in partners. We also evaluate the three basic ways of profit distribution. Fourth, in this paper, we analysis the reason of the promotion,standards, and timing of partners, then we introduce and evaluate the use of this promotion mechanism(up or go) in the firm. Finally, according to the survey data, the research on the internal governance mechanism of accounting firms, combining with theprevious theoretical analysis, we point out that currently there is feasibility and deficiency of internal governance mechanism in accounting firms, and puts forward suggestions for improvement.According to the above theoretical analysis and practical investigation, we imply that:(1) In terms of partners’ power allocation, the settings of the power distribution mechanism is difficult to achieve fairness and efficiency. Therefore, we suggest that in some important matters on the decision-making, we should consider the factors of performance and qualifications to set voting points, to reduce partners’ free-rider behavior in the exercise of decision-making power.(2) In terms of partner interests distribution, we suggest to increase the proportion of seniority factors in the distribution of profit, to reduce the risk of human capital and to ensure that the intergenerational inheritance in the firm. At the same time, there are agency problems between partners,to reduce the partners’ lazy behavior, the firm should appropriately consider the performance factors in benefit allocation standard.(3) In the term of partners’ promotion mechanism, promotion have incentive effect, and the promotion of partners is mainly for firm’s intergenerational inheritance, so we suggest that when accounting firms set up promotion criteria, they should reduce the weight of performance indicators,setting up a grant partner and increase the proportion of partners. Through this paper, we study the internal governance mechanism of accounting firms, to provide the beneficial suggestions for different types of firms’ partner internal governance mechanism.