Ownership Stakes and Remuneration in Merged Audit Firms

Document Type : Original Article

Authors

1 Ph.D. Student in Accounting, Central Tehran Branch, Islamic Azad University, Tehran, Iran

2 Assistant Professor, Department of Accounting, Faculty of Finance, Kharazmi University, Tehran, Iran

Abstract

Little is known about the governance systems of audit firms, especially after mergers. Due to the failure of several audit firm mergers in Iran, the present qualitative study addresses two challenging governance issues: determining ownership stakes and allocating profits and benefits between partners of merged audit firms. Content analysis of in-depth interviews with 28 partners from several merged audit firms revealed that when the merging firms have similar conditions, ownership stakes are divided equally; otherwise, the larger acquiring firm receives a larger percentage. At the individual partner level, the most commonly implemented method is to divide the shares of the merged firm according to the percentage of shares held by each partner in the pre-merger firms. Other approaches include: a comprehensive model, equal distribution of new stakes, more stakes for acquiring firm's partners, and assigning the majority of shares to a select group of main partners (senior and founding) based on their decision. Six firms shared profits by ownership stakes, three used a hybrid approach (performance and ownership), and two used stakes for principals and fixed salaries for non-principals. The results of this research, which sheds light on the governance system of merged audit firms and the interests of partners, have important implications for both audit firms and professional supervisory bodies. Specifically, these findings can help to create and maintain the motivation of audit partners in professional partnerships, ultimately contributing to the success of the merger in practice.

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Main Subjects


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