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Law and Accounting Networks and Associations
Accounting Networks – Setting the Standard for Networks
“The accounting profession in the U.S. was built upon a state-established monopoly for audits of financial
statements.”90 Accounting networks arose out of the necessity for public American companies to have audited
financial statements for the Securities Exchange Commission (SEC).91 For more than 70 years, the SEC has
continually sought for greater coordination and consistent quality in audits everywhere in the world. Networks
were the logical model to address these requirements. They expanded outside of the United States, since
financial results had to be audited wherever a company conducted business. In the U.S., the Public Company
Accounting Oversight Board (PCAOB) regulations provide for inspection of non-United States firms. Without
a network with common standards and internal means of communications, conducting the required audits
would not be possible.92
There were other profession-based factors that favored the growth of accounting networks. As a result of
competition for the audit work, consolidation was inevitable. These include the fact that a network can establish
a brand. A brand establishes the credibility of the network and allows the individual members to charge more.93
Creating a brand is very difficult when all of the members of a network are providing essentially the same
services.
Being a network member establishes that the firm is part of a large group. Additionally, the larger the firm, the
more likely it will be invited to render auditing engagements. A large organized network allows for spreading
the costs in order to price competitively. Ultimately, size is the only real means of differentiation that is readily
available on accounting firms to assure clients that they can do international work.94
Networks also reflect the clients’ needs for seamless worldwide services because they are more efficient and
cost-effective. This was clearly illustrated by Freidheim.95 From the perspective of the accounting firm, a global
regulated organization with consistently applied standards significantly reduced the risk. However, increasing
the size of the networks can enhance legal liability risks96 and quality control issues that have not been
resolved.97
With these factors in play, some networks continued to grow; others remained in a stasis position. Individual
members of networks began to offer other services related to accounting. These services included forensic
accounting, business appraisals, employee benefits planning, strategic planning, and almost anything
90 W. E. Olson, The Accounting Profession in the 20th Century, THE CPA J. (July 1999).
91 For the history of accounting networks, see MARK STEVENS, THE BIG SIX (1991); see also Stephen A. Zeff, How the U.S. Accounting Profession Got
Where It Is Today, 17 ACCOUNTING HORIZONS 189-205 (Sept. 2003); see also H. Lenz & M. Schmidt, Das Strategische Netzwerk als Organisationsform
internationaler Prüfungs- und Beratungsunternehmens – die Entwicklung zur „Global Professional Service Firm“, in J. ENGELHARD & E.J. SINZ,
KOOPERATION IM WETTBEWERB. WIESBADEN 113-150 (1999); see also J. Klaassen & J. Buisman, International Auditing, in COMPARATIVE INT’L
ACCT. (Chris Nobes & Robert Parker Eds., 6th ed. 2000); Michael Barrett, et. al., Globalization and the Coordinating of Work in Multinational Audits,
30 ACCT., ORGS. AND SOC’Y 1, 1-24 (2005).
92 Id.
93 Van Alstyne, supra note 8.
94 Rachel Baskerville & David Hat, Globalization of Professional Accounting: The Big 8 Entering New Zealand, (University of Exeter, Dept. of
Accounting, Working Paper, 2006), available at http://hdl.handle.net/10036/29637, citing Greenwood et. al., Biggest is Best? Strategic Assumptions
and Actions in the Canadian Audit Industry, 10 REVUE CANADIENNE DES SCIENCES DE L’ADMINISTRATION 308-322 (1993).
95 Freidheim, supra note 14, for a discussion on the history of networks.
96 See infra Chapter 7, Regulations and Other Legal Considerations for Networks.
97 “In some respects, the nature and structure of the industry today is more likely to hamper than help in that process (quality control). Specifically, we
noted the geographic dispersion of the Big 4’s accountants, the many different cultures in which they practice, and the many legal systems to which
they are subject. All of these factors make it extremely difficult to maintain uniform audit and performance standards. Participants also voiced concern
about the characteristic organizational structure of a Big 4 firm, an amalgam of partnerships with separate legal identities operating under the same
brand name. While it may be unrealistic to demand that each such confederation of partners become a single partnership, we believe each firm can do
far more to raise standards and levels of expertise at each of these related partnerships globally.” The Future of the Accounting Profession, THE 103RD
AMERICAN ASSEMBLY, 10 (Nov. 13-15, 2003) www.iasplus.com/resource/americanassembly.pdf.
14
Accounting Networks – Setting the Standard for Networks
“The accounting profession in the U.S. was built upon a state-established monopoly for audits of financial
statements.”90 Accounting networks arose out of the necessity for public American companies to have audited
financial statements for the Securities Exchange Commission (SEC).91 For more than 70 years, the SEC has
continually sought for greater coordination and consistent quality in audits everywhere in the world. Networks
were the logical model to address these requirements. They expanded outside of the United States, since
financial results had to be audited wherever a company conducted business. In the U.S., the Public Company
Accounting Oversight Board (PCAOB) regulations provide for inspection of non-United States firms. Without
a network with common standards and internal means of communications, conducting the required audits
would not be possible.92
There were other profession-based factors that favored the growth of accounting networks. As a result of
competition for the audit work, consolidation was inevitable. These include the fact that a network can establish
a brand. A brand establishes the credibility of the network and allows the individual members to charge more.93
Creating a brand is very difficult when all of the members of a network are providing essentially the same
services.
Being a network member establishes that the firm is part of a large group. Additionally, the larger the firm, the
more likely it will be invited to render auditing engagements. A large organized network allows for spreading
the costs in order to price competitively. Ultimately, size is the only real means of differentiation that is readily
available on accounting firms to assure clients that they can do international work.94
Networks also reflect the clients’ needs for seamless worldwide services because they are more efficient and
cost-effective. This was clearly illustrated by Freidheim.95 From the perspective of the accounting firm, a global
regulated organization with consistently applied standards significantly reduced the risk. However, increasing
the size of the networks can enhance legal liability risks96 and quality control issues that have not been
resolved.97
With these factors in play, some networks continued to grow; others remained in a stasis position. Individual
members of networks began to offer other services related to accounting. These services included forensic
accounting, business appraisals, employee benefits planning, strategic planning, and almost anything
90 W. E. Olson, The Accounting Profession in the 20th Century, THE CPA J. (July 1999).
91 For the history of accounting networks, see MARK STEVENS, THE BIG SIX (1991); see also Stephen A. Zeff, How the U.S. Accounting Profession Got
Where It Is Today, 17 ACCOUNTING HORIZONS 189-205 (Sept. 2003); see also H. Lenz & M. Schmidt, Das Strategische Netzwerk als Organisationsform
internationaler Prüfungs- und Beratungsunternehmens – die Entwicklung zur „Global Professional Service Firm“, in J. ENGELHARD & E.J. SINZ,
KOOPERATION IM WETTBEWERB. WIESBADEN 113-150 (1999); see also J. Klaassen & J. Buisman, International Auditing, in COMPARATIVE INT’L
ACCT. (Chris Nobes & Robert Parker Eds., 6th ed. 2000); Michael Barrett, et. al., Globalization and the Coordinating of Work in Multinational Audits,
30 ACCT., ORGS. AND SOC’Y 1, 1-24 (2005).
92 Id.
93 Van Alstyne, supra note 8.
94 Rachel Baskerville & David Hat, Globalization of Professional Accounting: The Big 8 Entering New Zealand, (University of Exeter, Dept. of
Accounting, Working Paper, 2006), available at http://hdl.handle.net/10036/29637, citing Greenwood et. al., Biggest is Best? Strategic Assumptions
and Actions in the Canadian Audit Industry, 10 REVUE CANADIENNE DES SCIENCES DE L’ADMINISTRATION 308-322 (1993).
95 Freidheim, supra note 14, for a discussion on the history of networks.
96 See infra Chapter 7, Regulations and Other Legal Considerations for Networks.
97 “In some respects, the nature and structure of the industry today is more likely to hamper than help in that process (quality control). Specifically, we
noted the geographic dispersion of the Big 4’s accountants, the many different cultures in which they practice, and the many legal systems to which
they are subject. All of these factors make it extremely difficult to maintain uniform audit and performance standards. Participants also voiced concern
about the characteristic organizational structure of a Big 4 firm, an amalgam of partnerships with separate legal identities operating under the same
brand name. While it may be unrealistic to demand that each such confederation of partners become a single partnership, we believe each firm can do
far more to raise standards and levels of expertise at each of these related partnerships globally.” The Future of the Accounting Profession, THE 103RD
AMERICAN ASSEMBLY, 10 (Nov. 13-15, 2003) www.iasplus.com/resource/americanassembly.pdf.
14
