The structure of profit sharing schemes in accounting partnerships

This paper explains aspects of profit sharing arrangements in accounting partnerships, including the geographical dispersion of partnerships. It is posited that accounting partnerships sharing profits on a national or international basis are likely to use performance‐based profit sharing rules; whereas local partnerships are likely to share profits equally. This is caused by factors influencing performance monitoring of partners. We propose that the geographical dispersion of profit sharing is determined by the ability to utilise teamwork efficiently across locations. Results show that more geographically disperse partnerships have a greater proportion of their clients that are firm specific, rather than intrinsically linked to any one individual within the partnership. Finally, guidelines for the efficient design of partnership profit‐sharing arrangements are outlined.