David M. Katz, CFO.com | US
December 5, 2008

Effects of Disincentivation

In response to a call to unionize staff accountants and take away profit motives for accounting firms.

If there is no profit motive, that means there is no upside in the businesses. If there is no upside in the business, then, likewise, there is no downside (else no one would be willing to be in the business). No downside implies the inability to be legally liability for a bad audit, which creates a serious moral hazard problem for the whole audit industry.
The profit motive forces firms to be more careful so they don't get sued.

Staff accountants, just like many other beginning professionals (new attorneys, medical residents, post-doctoral students and so on) by design work horrific hours for an incommensurate amount of money. They do this by choice because they know there is a huge amount of experience to be gained, and also because if they stay in the game, there is a very fulfilling and prosperous career to be had. Tournament theory indicates this be the case. It is not exploitation, it is a model that exists in most professions, and works.

Posted by Jeff Hoopes | Dec 5, 2008 11:11 PM ET

Exploitation

With this disclosure, which should be public, there would/should be instant insight into how staff accountants are exploited by the Big Four CA firms. This is the first step to change. The next step is to unionize staff accountants. The final step is to remove billing from the auditors hands from being profit oriented enterprises consistent with the ideology of their clients. Instead, the audited firms would pay audit premiums and those revenues would be allocated to the audit firms.

That way, there is more objectivity. There is questionable objectivity of audit firms when their goal is to make a profit like their clients.

Posted by David Newman | Dec 5, 2008 9:28 PM ET