Professional and Commercial Incentives in Audit Firms: Evidence on Partner Compensation

European Accounting Review, Forthcoming

58 Pages Posted: 30 Jun 2019

See all articles by Marie-Laure Vandenhaute

Marie-Laure Vandenhaute

Vrije Universiteit Brussel

Kris Hardies

University of Antwerp

Diane Breesch

Vrije Universiteit Brussel

Date Written: June 28, 2019

Abstract

Audit firms can shape and foster the desired behavior of their partners in accordance with the firm’s strategy and objectives through compensation schemes. Understanding financial incentives is therefore of great importance, especially to ensure that auditors actually deliver high quality work. This study analyzes the elements associated with the compensation of audit partners in Belgium, and specifically contributes to the literature by investigating how compensation schemes vary across firms of different sizes (Big 4, second-tier, and small audit firms). Our results indicate that the mixture of equal sharing and performance based compensation elements varies across firms of different sizes. Partner compensation in larger (Big 4 and second-tier) firms is more heavily based on performance based elements than in smaller audit firms. Furthermore, in firms of all sizes compensation appears to be strongly associated with commercially oriented elements while professionally oriented elements only play a minor role. Professionally oriented elements are, however, slightly more important in larger (Big 4 and second-tier) firms than in smaller firms.

Keywords: Partner Compensation, Financial Incentives, Equal Sharing, Performance Based

Suggested Citation

Vandenhaute, Marie-Laure and Hardies, Kris and Breesch, Diane, Professional and Commercial Incentives in Audit Firms: Evidence on Partner Compensation (June 28, 2019). European Accounting Review, Forthcoming , Available at SSRN: https://ssrn.com/abstract=3411740

Marie-Laure Vandenhaute (Contact Author)

Vrije Universiteit Brussel ( email )

Pleinlaan 2
Brussel, 1050
Belgium

Kris Hardies

University of Antwerp ( email )

Department of Accounting and Finance
Pleinlaan 13
Antwerp, 2000
Belgium

Diane Breesch

Vrije Universiteit Brussel ( email )

Pleinlaan 2
Brussels, Brussels 1050
Belgium

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