Performance of Accounting Firms

Question: Discuss about thePerformance of Accounting Firms. Answer: Introduction The different forms of ownership of a professional service firm have been discussed in the report. Analysis regarding each type has been done to ascertain advantages and disadvantages regarding it. The report consists introduction relevant to each type of business form so that it could be easily understood. The relation between them has also been included in the report. The research design used by Pickering has been also discussed in the report with the research questions. An analysis of research of Pickering has been done for explaining the summary of its finding in an appropriate manner. Part A Professional services firms can be said as an organization which serve customised knowledge-based service to clients. It includes accountants, financial advisors, architects, consultant and etc. A leverage system is used by the professional firm to maximise its profitability (Btiz-Lazo and Billings, 2012). In most cases, a lower pay is accepted by the professionals as they want to gain experience and acquiring valuable knowledge. The challenges that are to be faced by professional service firm are unique due to a nature of service firm. A firm must focus on creative ways through which it can keep its staff motivated and keep staff morale high. In a competitive field, it is not possible for a service firm in the absence of talented human capital. Professional service firm provides products with no physical from as expertise, advice and other similar products (Maister, 2012). Different Forms of Ownership of a Professional Service Firm: Figure 1: Different forms of business Sole Proprietorship: A sole proprietorship is that kind of business form which is owned by a single firm. Therefore the owner is liable for unlimited liabilities. The creditors of this business form can claim from personal assets of a business owner in case he is not able to pay the debts. There is no legal distinction between the business and the owner in this form of business. A direct control on all the elements is available to the owner (Cummings and Worley, 2014). Advantages and Disadvantages: The procedure of registration of a business name in case of a sole proprietorship is quite easier in comparison to others unless the chosen name is fictitious or assumed. The owner is legally allowed for finance of such business which includes loan, debt, etc. The license for a sole proprietor enables him to hire employees and enlist the service of independent consultants. This form of business is transposed by unlimited liability with it. The total liability for all the debts and losses is suffered by the owner of the business to the extent of using personal assets for discharging the liabilities. The advantage of full control on the management and earning on the business is available in this form of business only. (Poon, 2014). Partnership It is a form of business in which two or more persons contribute their resources for doing business. The resources could be intangible as expert knowledge and experience regarding business. The partners divide the profit and loss of business in accordance with pre-determined basis. It is usually adopted by small business entities (Dunning, 2013.). General Partnership: All the partners have unlimited liability in case of a general form of partnership. The assets of the firm are owned on behalf of other partners, and each of them is jointly and severally liable. If one of the partners is apparently carrying on partnership then, all the partners can be made liable for his act with third parties (Klimkeit and Reihlen, 2016). Limited Partnership: The liability of a partner in case of limited liability is limited to fully pay up the value of share capital. The creditor cannot claim from personal assets of partners in case the firm is not able to pay off the debts. Limited liability is generally available to a group of professional only (Zikmund and et.al. 2013). Corporation A company can be said as a corporation which is a group of people authorised to act as a single entity. It is a business organisation which has a separate legal entity from its owner is a corporation. The owners have limited involvement in company operations and enjoy limited liability as well. As a shareholder of the corporation they are not personally liable for debts and obligations of the company. Registered corporations are having legal personality and are owned by the shareholders whose liability is limited to their investment. It is able to exercise right against real individuals (Goulding, 2013). It can be convicted for offences such as fraud and manslaughter but not considered as living entities in the way human are. Limited Liability Company It is a hybrid form of business which has characteristics of both corporations as well as a partnership. In this business form, the owners enjoy limited liability in the same manner as in a corporation. It may be taxed as a sole proprietor, partnership or corporation in the manner chosen by Limited Liability Company. It allows the investor to limit the liability of investor in case of business failure (Halinen, 2012.). The development of limited liability act 1855 was passed by Mr Robert Lowe, the Vice president of Board of Trade. It enables the investor to limit their liability to the amount of their investment in case of business failure. Cooperative It is a business form which can be said as a group of individuals which is operated for their mutual benefits. It can be incorporated and unincorporated both. The individuals creating the group are known as members. The disadvantage of this form of business is that the procedure of taking a decision is very long because participation of all the members is required in order to succeed (Hatten, 2015.). Democratic control is found in this kind of business form. It includes non-profit community organisations and it managed by people who use the service of the people who are part of the organisation. It can be said as a jointly owned enterprise which is engaged in distributing goods or supplying services operated by its own members for their mutual benefit (Dent and Whitehead, 2013.). Part B Research Questions in Study of Pickering The questions that Pickering was trying to address in his research to explore the relative performance of the partnership and public corporation form of business are: Figure 2: Research question of Pickering The above questions are addressed in the research of Pickering through which his whole analysis was done. The first question is related to the manner in which the revenue of a public listed company will be compared with revenue of partnership firm. The procedures which are to be applied and the relative measures which are to be taken care of while comparison of both the revenues (Edward Pickering and Edward Pickering, 2015). The second question is related to the validity of proxy measures that is revenue growth rate and revenue per person. The objective behind it was to ascertain the consideration to be taken while evaluating the business review weekly. The use of management theory was being done to ascertain the causes of lower revenue per person found in the public limited company than partnership firms (Maister, 2012). The last question was related to the importance of budget figures. The implication of business review weekly, on the estimated figures and the implication of the same on the estimations done by the company. The reason for discrepancies regarding estimation and actual figures were found through reviewing the applied methods. According to the research of Pickering, it was found in nine out of ten companies, the actual figures differed. The study contributed to information regarding the comparison of the performance of partnership firm with publicly owned companies. It was the first research regarding the analysis of new emerged accounting PLCs. It was concluded through the research that revenue per person of partnership firm was more than public companies. Part C The Research Designed by Pickering The research designed by Pickering includes the following steps in the analysis of partnership versus public ownership of accounting firm Data Sources: The first step in the research was to collect relevant data for analysis. The major of data was collected from three resources i.e. (a) Business Review Weekly (Australia), (b) the annual report of two PLCs, (c) Factiva electronic data based on newspapers and magazine. The first source can be said as the primary source of research for accounting partnership revenues and personnel numbers. The data of annual reports was used to evaluate the data collected from Business Review Weekly survey. The evaluation was necessary to check whether the data of BRW is appropriate or not. The data retrieved from the newspaper and magazine was used to explore the reason behind the low revenue per person of HR Block (Australia) and for ascertaining the reasons behind differences between budgeted revenue and subsequently reported actual revenues. Sample Used: Pickering used two similar sized public accounting companies for analysis and research. The two companies were WHK Group and Stockford Ltd. as they had similar size revenue. The strategy used by the organisation was to acquire small and medium size companies by using shares and company capital as consideration appears on a consistent basis regarding most publicly accounting firm and a characteristic of ownership form. Measures Used: As the financial information relevant for recognising partnership was not appropriately available. Hence, prior studies of PSF performance and publicly available proxy measures were used for the study. Revenue growth and productivity related measure were utilised as proxy measures for the study. Comparison of revenue of per person with the professional was used. Findings: At this stage, the firstly the proxy measures and source survey data that have been discussed for the company measures according to the available data. A no. of issues was identified through the review of BRW top 100 accounting firms including. The two samples which were chosen for the review, the calculations relating to the manner in which revenue per resources was calculated and the difference between revenue of partnership firms and public Ltd company (Pickering, 2012). The following issues were analysed during the study: The reason behind the inconsistency of survey is reporting over time. Analysis of the reason of differences between revenue numbers as reported in the annual report and the estimate available in surveys. Inconsistencies with the no. of partners or professionals while reporting the partner and professionals in a partnership firm and public organisation. As per the report of HR block report that 90% of the revenue is generated by using substantial casual labour. It was concluded that use of absolute staff on behalf of full-time employment as they may understand the performance of firms. Reporting regarding revenues for mergers with partnership was also considered for understanding the relative productivity of partnership versus publicly listed companies. Measurement Issues: The different treatment of revenues which were gained through mergers across the organisational ownership forms indicated the early negative impact on revenue per person reported by the public companies. The evaluation of accounting revenue during the period was done which revealed the seasonality of revenue in accounting year that 90% of the revenue was earned in first four months. The use of year-end personal and professional number for calculating and comparing revenue per person created many problems (Partnership Versus Public Ownership of Accounting Firms: Exploring Relative Performance, Performance Measurement and Measurement Issues, 2012). These productive numbers should be accurate to the extent possible according to the resources utilised during the period. It is having a greater impact on revenue per person on public companies rather than partnership firm. Comparison of performance of the Two PLCs: The comparison was made between WHK and Stockford group on various financial factors measured on proxy measures which were publicly available. The evaluation of revenue per employee of both the companies was done to explore the extent to which the proxy measures reflect the divergent financial performances of the entity. Revenue of one employee was not a reflection of the profitable performance of the company. As the review of BRW survey was found as early indicators that the survey numbers were erroneous. Due to difference between actual and estimated figures, the revenue per employee was revaluated using average personnel numbers (employees at the beginning of the year and employees at the end of the year were considered for it.) The results indicated that Stockford is marginally more productive than WHK. The productive measure of Stockford would have been more pronounced in case the no. of reliable professional was available as it had more non-professional employees. Part D Summary of Findings of Pickering As the public listed companies emerged with a rapid growth and became larger than the big four accounting firms in Australia. The partnership form of business has been theorised as an important attribute of the performance of professional service firm. The study regarding two Australian accounting companies with a sample of ten-second tier accounting partnerships firms was done through data publicly available. According to the analysis of Pickering, a corporate enables rapid growth than partnership through the issue of shares against acquisition in the company. Industry survey and proxy measures have been used to measure the performance of different form of ownership of firm professional service firms. It was analysed that the firm focusing on providing commoditised services are requiring a lower level of tailored solutions as they are dealing with less sophisticated clients than sample accounting partnerships. Year-end data were proved more reliable than annual averages which understate the relative productivity of rapid PLCs; in case the growth of partnership firm is low. Despite availability of advantages in partnerships, it has been observed that most of the firms have been moving to other forms of business as corporate etc. The study has also focused on the fact that whether the performance is affected due to a form of business. As the private firms do not release the information publicly, the available proxy was used to compare the profitability of public and private form of business. Ratios were used to measure in a broad way the comparison regarding industry and geographic settings of different forms of ownership. Different market segments were approached by PLCs and partnership firms for the attainment of charging out rates and cost of professional employed. The main focus of WHK and Stockfords Ltd. was on small and medium enterprise markets and individual. It was analysed that according to year-end personnel numbers the increase in revenue per person was 79% between the year 2001 and 2005 in comparison to partnership firms whose revenue per person was 24%. According to the financial measures, it was ascertained that WHK outperformed but the same was not concluded from proxy measures. Therefore it was concluded that revenue per person was not a reflection of profitability performance of the two samples which were taken. The reason behind the difference in the percentage of revenue per person was a substantial drop in profit of partnership firm in a year or revenue per person is not an appropriate measure for comparing the profitability performance. The study concluded that the public owned company attain higher growth rate in comparison with partnership firms but on the other hand lower level of productivity revenue (revenue per person) was attained by public companies in comparison to partnership firms. The difference in financial performance of two similar companies in the same market and geographical conditions can be only because of different strategies, governance and impact of professional behaviour and structure of ownership. After analysis of data of 2002, it can be said that WHKs related employee cost was 64.7%, and the percentage of Stockford is 78.5% per person. The difference in cost resources is an important factor in understanding in comparing the profitability of different forms of business. As the research was of exploratory nature, the sample of two PLCs and ten firms is too small for statistical performances. Conclusion It can be concluded from the above study that the all the analysis was done on the basis of publicly available data. The importance of revenue per person and productivity level has been discussed in the report. Various bases on which comparison of profitable or financial performance between PLCs and partnership firms have been presented in the report. The above report concludes that revenue per person is not a correct base to compare the profitability performance of two entities. A detailed procedure adopted has been included in the report to ascertain the manner of analysis done by Pickering. References Books Journal Btiz-Lazo, B. and Billings, M. 2012. New perspectives on not-for-profit financial institutions: Organisational form, performance and governance. Business History. 54(3), Pp.309-324. Cummings, T.G. and Worley, C.G. 2014. Organization development and change. Cengage learning. Dent, M. and Whitehead, S. eds. 2013. 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Partnership Versus Public Ownership of Accounting Firms: Exploring Relative Performance, Performance Measurement and Measurement Issues. [Online]. Available through https://ro.uow.edu.au/cgi/viewcontent.cgi?article=1368context=aabfj. [ Accessed on 24th September 2016]