Ever since my days as a staff auditor at Arthur Andersen, I’ve wondered what it costs to become a partner at a large firm. It’s obviously not something that is widely discussed with staff, so the youngsters all remain clueless.<\/p>\n
But Francine McKenna of re: The Auditors<\/a> has finally answered my question. She points to a report by the Center for Audit Quality<\/a>. The report says that the average capital contribution per partner is $418,365, which is no small sum for an individual to pay.<\/p>\n The big downside is that it’s easy to lose all that money if the firm is sued or otherwise collapses. Think about all those partners who lost their contribution when Arthur Andersen folded. That had to be painful. And you can bet that when they wanted to move to another big firm after the collapse of AA, they had to pony up again. (I wonder if the firms offered any special deals for them?)<\/p>\n The report also points out that this capital contribution to a big firm doesn’t generally appreciate like other investments will. Francine disagrees, saying that the rate of interest paid on the funds on deposit are higher than market rates, so there is some value there.<\/p>\n Francine offers some insight to this issue as a former director at PricewaterhouseCoopers… She says that when partner-level people came to the firm late in life (age 50 or over) they did not generally get offered partnership because it made no economic sense. Most partners finance this buy-in with a bank loan, and with PwC’s mandatory retirement age of 60, there simply wasn’t enough time to pay off the loan. And with ten years or less to work, they wouldn’t earn enough money there to make it worthwhile.<\/p>\n There’s a bit of irony to all this. Francine writes:<\/p>\n