Page 83 - The Handbook - Legal and Accounting Networks 81
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Law and Accounting Networks and Associations
networks or associations.355 The specifics of the lessons learned are set out in a presentation by Mayer Brown
Platt, who represented Deloitte in Parmalat and BDO in Banco Espirito Santo. They list five practical
implications.356
Step 1: Review structure – e.g., ownership of IP, audit methodology, etc.357
Step 2: Review documents relating to structure and other written materials; engagement
letters at MF level; scrub organizational documents and MFA (member financial
agreement) to ensure that they expressly disavow “control” by coordinating entity over
member firms and expressly affirm the independence of the member firms; disclaimers in
literature/websites, etc.: not necessarily conclusive but absence may be held against firms;
include language in engagement letter specifying that only party responsible for
engagement is the originating member firm;
Step 3: Identify actions that might be misused by plaintiffs to increase coordinating entity
liability risk, and undertake cost/benefit assessment; involvement of coordinating entity
(including coordinating entity personnel) in specific audit decisions and/or specific audit
staffing decisions; sharing of profits; and individual with key roles in coordinating entity;
Step 4: Identify actions that might be misused by plaintiffs to increase risk of liability
spillover to other member firms and undertake cost/benefit assessment; significant control
by one or more member firms over actions of the coordinating entity; individuals with key
roles in both coordinating entity and member firm; sharing of profits; compliance with
legal formalities in connection with secondments; and appearance of control by one
member firm over the work of another member firm; and
Step 5: Police behavior on the ground so far as possible.
Law firm networks would not be subject to vicarious liability under the principles set out since they have no
control over members.
Competition Regulations among the Accounting Networks
The accounting networks have a much greater competition with each other than with the legal network. The
reason is obvious. The Big 4 currently dominate the public company audits with more than 90 percent of the
market in most countries. The other networks are expanding and becoming comparable in their abilities to
355 Smith, supra note 356: “And this is why all the groups are very clear about how they define themselves. Size would appear to have a bearing on this.
In the top 15 groups, all – bar three – class themselves as a network, as set out in the EU’s 8th company directive and the International Federation of
Accountants’ (IFAC) own ethical code.
But, after the picture changes. Out of the remaining 15 groups in the Top 30, only four describe themselves as a network, with the others preferring
to take the association route. This is understandable as there can be little doubt that greater resources are required in order to police a network and ensure
that there is no exposure to legal action.
‘Some international groupings that rather sat on the fence in the ‘network or association’ debate a year or two back are now beginning to take clearer
positions about which path they wish to take, and this is causing certain member firms to re-evaluate their membership,’ comments James Mendelssohn,
former chief executive of MSI Global Alliance (20th, $1.3bn).
‘This will result in a certain amount of movement of member firms between different organizations – and those with a clear and defined strategy will
do well. MSI Global Alliance sees this as an opportunity and, indeed, one that has already resulted in us gaining a couple of new members,’ he says.”
356 BDO International Webinar, MAYER BROWN, www.mayerbrown.com/public_docs/BDO_International_Webinar_Slides.pdf.
357 Smith, supra note 357.
71
networks or associations.355 The specifics of the lessons learned are set out in a presentation by Mayer Brown
Platt, who represented Deloitte in Parmalat and BDO in Banco Espirito Santo. They list five practical
implications.356
Step 1: Review structure – e.g., ownership of IP, audit methodology, etc.357
Step 2: Review documents relating to structure and other written materials; engagement
letters at MF level; scrub organizational documents and MFA (member financial
agreement) to ensure that they expressly disavow “control” by coordinating entity over
member firms and expressly affirm the independence of the member firms; disclaimers in
literature/websites, etc.: not necessarily conclusive but absence may be held against firms;
include language in engagement letter specifying that only party responsible for
engagement is the originating member firm;
Step 3: Identify actions that might be misused by plaintiffs to increase coordinating entity
liability risk, and undertake cost/benefit assessment; involvement of coordinating entity
(including coordinating entity personnel) in specific audit decisions and/or specific audit
staffing decisions; sharing of profits; and individual with key roles in coordinating entity;
Step 4: Identify actions that might be misused by plaintiffs to increase risk of liability
spillover to other member firms and undertake cost/benefit assessment; significant control
by one or more member firms over actions of the coordinating entity; individuals with key
roles in both coordinating entity and member firm; sharing of profits; compliance with
legal formalities in connection with secondments; and appearance of control by one
member firm over the work of another member firm; and
Step 5: Police behavior on the ground so far as possible.
Law firm networks would not be subject to vicarious liability under the principles set out since they have no
control over members.
Competition Regulations among the Accounting Networks
The accounting networks have a much greater competition with each other than with the legal network. The
reason is obvious. The Big 4 currently dominate the public company audits with more than 90 percent of the
market in most countries. The other networks are expanding and becoming comparable in their abilities to
355 Smith, supra note 356: “And this is why all the groups are very clear about how they define themselves. Size would appear to have a bearing on this.
In the top 15 groups, all – bar three – class themselves as a network, as set out in the EU’s 8th company directive and the International Federation of
Accountants’ (IFAC) own ethical code.
But, after the picture changes. Out of the remaining 15 groups in the Top 30, only four describe themselves as a network, with the others preferring
to take the association route. This is understandable as there can be little doubt that greater resources are required in order to police a network and ensure
that there is no exposure to legal action.
‘Some international groupings that rather sat on the fence in the ‘network or association’ debate a year or two back are now beginning to take clearer
positions about which path they wish to take, and this is causing certain member firms to re-evaluate their membership,’ comments James Mendelssohn,
former chief executive of MSI Global Alliance (20th, $1.3bn).
‘This will result in a certain amount of movement of member firms between different organizations – and those with a clear and defined strategy will
do well. MSI Global Alliance sees this as an opportunity and, indeed, one that has already resulted in us gaining a couple of new members,’ he says.”
356 BDO International Webinar, MAYER BROWN, www.mayerbrown.com/public_docs/BDO_International_Webinar_Slides.pdf.
357 Smith, supra note 357.
71
