Sub: Accounting Topic:
Risks of being a Partner in an Accounting Firm
Partners in large accounting firms can make over $250,000 per year, with top partners drawing over$800,000. However, consideration of those incomes should take into account the risks that partnerstake and the fact that the incomes of partners in small accounting firms are often much lower.Partners are not compensated in the same way as managers in corporations. Partner's income is notguaranteed, but rather is based on the performance of the partnership. Also, each partner is requiredto make a substantial investment of capital in the partnership. This capital remains at risk for as longas the partner chooses to stay in the partnership. For instance, in one notable case, when a large firmwas convicted of destroying evidence in the Enron case, the partners lost their total investments aswell as their income when their firm was subjected to lawsuits and other losses.The firm waseventually liquidated.
Dissolution of a partnership
occurs whenever there is a change in the original association of partners. When a partnership is dissolved, the partners lose their authority to continue the businessas a going concern. The fact that the partners lose this authority does not necessarily mean that thebusiness operation is ended or interrupted. However, it does mean
from a legal and accountingstandpoint
that the separate entity ceases to exist. The remaining partners can act for thepartnership in finishing the affairs of the business or in forming a new partnership that will be a newaccounting entity. The dissolution of a partnership takes place through, among other events, theadmission of a new partner, the withdrawal of a partner, or the death of a partner.The admission of a new partner dissolves the old partnership because a new association has beenformed. Dissolving the old partnership and creating a new one requires the consent of all the originalpartners and the ratification of a new partnership agreement. When a new partner is admitted, anew partnership agreement should be in place. An individual can be admitted to a partnership in one