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This dissertation studies first the impact of the promotion
opportunity on incentive and then the impact of audit
liabilities allocation on incentive in a CPA firm.
The motivation problems of management consulting(MAS) employees
are more important than ever when the MAS revenue increases
rapidly in a CPA firm. And it is worth to study the effect of
not allowing a MAS employee having no CPA license to be
promoted as partner in a CPA firm. I use a two-period
principal-agent model to compare the impact of the promotion
opportunities of three different CPA organization forms on
audit manager''s incentive and effort, on MAS manager''s
incentive and effort, and on the welfare when there is
externality between audit and MAS work. The three different CPA
organization forms are: A. incorporating audit and MAS functions
in one firm but not allowing MAS manager to be promoted; B.
incorporating audit and MAS functions in one firm and allowing
MAS manager to be promoted; C. separating the audit and MAS
functions in different firms. The main results are summarized
as follows: 1. In audit function, Type A, B both
have "promotion incentive (manager can get more when he was
promoted)" and "audit''s partnership net benefit
(which means incremental incentive benefit minus incremental
incentive cost when audit manager can share MAS revenue
after he is promoted)", but Type C only has the former. The
owner can get larger job incentive and effort in Type A, B if
audit''s partnership net benefit is positive. I get the opposite
result the other way around.
2. In MAS function, only Type B has promotion incentive and MAS''
s partnership net benefit ( analogue to audit''s partnership net
benefit ), Type C only has former but Type A doesn''t have any
one. Type A''s first period job incentive is larger than Type
C''s but Type C can induce higher effort because promotion
incentive can substitute job incentive. If MAS''s partnership
net benefit is positive then Type B has the largest first
period job incentive and can induce the highest effort; if not,
Type B''s incentive is the smallest but we don''t know whether
Type B''s effort is smaller than Type A''s.
3. Assume that manager can get more after he was promoted. If
MAS''s partnership net benefit is much larger than zero then Type
B''s welfare is larger than Type A''s. I get the opposite result
the other way around. If the two partnership net benefits are
positive, Type B''s welfare is higher than Type C''s; and vice
versa. In Taiwan, the junior partner in a
CPA firm must be responsible for large part of audit
liabilities. Is this an optimal way to allocate audit
liabilities between the junior and senior partners? I use a
one-period principal-agent multitask model to analyze the
impact of managing partner''s decision of audit liabilities
division on junior partner''s incentive when the latter must
get audit business and lead the audit team simultaneously from
the view of incentive, risk sharing and effort allocation.
The main results are summarized as follows:
1. When business effort and audit effort may hurt each other, it
is optimal that the junior partner should not be responsible for
any audit liabilities if the unit audit liability cost is
small enough. If the unit audit liability cost is large
enough, the managing partner and junior partner must share the
audit liabilities and the share of the junior must increases
as the unit audit liability cost increases. 2. When
business effort and audit effort can benefit each other, it is
optimal that the junior partner should be responsible for the
whole audit liabilities if the unit audit liability cost is
small enough. If the unit audit liability cost is large
enough, the managing partner and junior partner must share the
audit liabilities and the share of the junior must decreases
as the unit audit liability cost increases.
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