Waldo and Company, LLP, is a partnership that provides public accounting services. Waldo has three offices located in New Orleans, Baton Rouge, and Lafayette. Each of the offices employs approximately 30 professional accountants who are hired by and work solely for the office to which they are assigned. The offices are run independently, and there is a managing partner in charge of each office. Bonuses are paid to each managing partner based on criteria that include the number of staff hours worked and total billings for the respective office. The Lafayette office was recently hired by a large petroleum company to conduct an audit. This engagement will require more accounting personnel than are currently available in the Lafayette office. Nancy Bloom, managing partner of the Lafayette office, has asked the other offices to "lend" her some professional staff to assist on this engagement. The other offices want to help, but are concerned that "lending" their personnel will reduce the number of staff hours worked in their own offices, thereby reducing their billings and resulting bonuses.
Why does this situation reflect a transfer pricing problem for the firm? How should the firm handle the interoffice transfer of personnel from a pricing standpoint? If there are professional staff available in the New Orleans and Baton rouge offices who are not servicing clients, would the interoffice transfer price be affected?
This situation reflects a transfer pricing problem because there is a 'transfer' of service from one office to another which is the lending of accounting personnel to the Lafayette office. This ...
The question looks at limited liability partnership, Waldo and Company, and discusses the issues surrounding transfer pricing for the firm. Questions include how the firm should handle the transfer of personnel from a pricing standpoint and other situational questions.