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Law and Accounting Networks and Associations
ethics.338 The firms also agree to accept the idea that in order to comply with the requirements and standards,
they need more integration. The IFAC Code of Ethics (July 2006) distinguishes between firms that are
members of a network and those that are members of an association.339
Generally a network is an integrated entity with common standards, a logo, and a brand, and the members
share some financial risk. The regulations are ambiguous in that a number of associations are members of the
Forum of Firms.
The regulations further elaborate that a common brand name is likely to demonstrate that
there is a network but that a brand name is not necessary. “Even though a firm does not
belong to a network and does not use a common brand name as part of its firm name, it
may give the appearance that it belongs to a network if it makes reference in its stationery
or promotional materials to being a member of an association of firms. Accordingly, a firm
should carefully consider how it describes any such memberships in order to avoid the
perception that it belongs to a network.”340
According to the Audit Directive, the European Union has its own instructions, which state:
[A] network means the larger structure: which is aimed at cooperation and to which a
statutory auditor or an audit firm belongs; and which is clearly aimed at profit- or cost-
sharing or shares common ownership, control or management, common quality control
policies and procedures, a common business strategy, the use of a common brand-name or
a significant part of professional resources.
IFAC Code of Ethics 290 revised the determination. It should be “made in light of whether
a reasonable and informed third party would be likely to conclude that a network exists.”
A referral network is not a network by this definition. The shared costs must be significant.
Common quality system and business strategies are important considerations.341
Each country has an accounting association that sets its own standards. In the United States it is the American
Institute of CPAs (AICPA).342 In the United States, each state also has its association. In Europe, it is the
Federation of European Accountants (FEE).343 The overlay of rules reflects the importance of standards and
also the competitive nature of accounting.
The competitive element is reflected in the fact that networks themselves have formed their own “networks of
networks” to pursue their different interests. For example, even though most of the members of the European
Group of International Accounting Networks and Associations (Egian)344 are members of the Forum of Firms,
the members have very different interests from the Big 4. Egian members are seeking audit work that is
dominated by the Big 4.
Accounting Firms – Vicarious Liability
Members of a network can in theory be vicariously liable for the action of other members of the network.
Vicarious liability is a form of strict, secondary liability that arises under the common law doctrine of agency
338 Philip Smith, Top 35 Networks 2015: The Survey, ACCOUNTANCY AGE (July 9, 2012), www.accountancyage.com/aa/analysis/1776670/top-35-
networks-2013-the-survey.
339 A good overview is provided at the MSI Global’s website: MSI Faqs, MSI GLOBAL, www.msiglobal.org/content/core/msi_faqs.aspx.
340 Smith, supra note 341.
341 Id.
342 About the American Institute of CPAs, AICPA, www.aicpa.org/About/Pages/About.aspx.
343 FEDERATION OF EUROPEAN ACCOUNTANTS, www.fee.be/.
344 EUROPEAN GROUP OF INTERNATIONAL ACCOUNTING NETWORKS AND ASSOCIATIONS, www.egian.eu/members_list.htm.
68
ethics.338 The firms also agree to accept the idea that in order to comply with the requirements and standards,
they need more integration. The IFAC Code of Ethics (July 2006) distinguishes between firms that are
members of a network and those that are members of an association.339
Generally a network is an integrated entity with common standards, a logo, and a brand, and the members
share some financial risk. The regulations are ambiguous in that a number of associations are members of the
Forum of Firms.
The regulations further elaborate that a common brand name is likely to demonstrate that
there is a network but that a brand name is not necessary. “Even though a firm does not
belong to a network and does not use a common brand name as part of its firm name, it
may give the appearance that it belongs to a network if it makes reference in its stationery
or promotional materials to being a member of an association of firms. Accordingly, a firm
should carefully consider how it describes any such memberships in order to avoid the
perception that it belongs to a network.”340
According to the Audit Directive, the European Union has its own instructions, which state:
[A] network means the larger structure: which is aimed at cooperation and to which a
statutory auditor or an audit firm belongs; and which is clearly aimed at profit- or cost-
sharing or shares common ownership, control or management, common quality control
policies and procedures, a common business strategy, the use of a common brand-name or
a significant part of professional resources.
IFAC Code of Ethics 290 revised the determination. It should be “made in light of whether
a reasonable and informed third party would be likely to conclude that a network exists.”
A referral network is not a network by this definition. The shared costs must be significant.
Common quality system and business strategies are important considerations.341
Each country has an accounting association that sets its own standards. In the United States it is the American
Institute of CPAs (AICPA).342 In the United States, each state also has its association. In Europe, it is the
Federation of European Accountants (FEE).343 The overlay of rules reflects the importance of standards and
also the competitive nature of accounting.
The competitive element is reflected in the fact that networks themselves have formed their own “networks of
networks” to pursue their different interests. For example, even though most of the members of the European
Group of International Accounting Networks and Associations (Egian)344 are members of the Forum of Firms,
the members have very different interests from the Big 4. Egian members are seeking audit work that is
dominated by the Big 4.
Accounting Firms – Vicarious Liability
Members of a network can in theory be vicariously liable for the action of other members of the network.
Vicarious liability is a form of strict, secondary liability that arises under the common law doctrine of agency
338 Philip Smith, Top 35 Networks 2015: The Survey, ACCOUNTANCY AGE (July 9, 2012), www.accountancyage.com/aa/analysis/1776670/top-35-
networks-2013-the-survey.
339 A good overview is provided at the MSI Global’s website: MSI Faqs, MSI GLOBAL, www.msiglobal.org/content/core/msi_faqs.aspx.
340 Smith, supra note 341.
341 Id.
342 About the American Institute of CPAs, AICPA, www.aicpa.org/About/Pages/About.aspx.
343 FEDERATION OF EUROPEAN ACCOUNTANTS, www.fee.be/.
344 EUROPEAN GROUP OF INTERNATIONAL ACCOUNTING NETWORKS AND ASSOCIATIONS, www.egian.eu/members_list.htm.
68
