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The Handbook: Law Firm Networks
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.”111 Accounting networks arose out of the necessity for public American companies to have
audited financial statements for the Securities Exchange Commission (SEC).112 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.113
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.114 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.115
Networks also reflect the clients’ needs for seamless worldwide services because they are more efficient and
cost-effective. This was clearly illustrated by Freidheim.116 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 risks117 and quality control issues that have not
been resolved.118
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
111 W. E. Olson, The Accounting Profession in the 20th Century, THE CPA J. (July 1999).
112 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).
113 Id.
114 Van Alstyne, supra note 8.
115 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).
116 Freidheim, supra note 14, for a discussion on the history of networks.
117 See infra Chapter 7, Regulations and Other Legal Considerations for Networks.
118 “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 Four’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 Four 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.
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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.”111 Accounting networks arose out of the necessity for public American companies to have
audited financial statements for the Securities Exchange Commission (SEC).112 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.113
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.114 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.115
Networks also reflect the clients’ needs for seamless worldwide services because they are more efficient and
cost-effective. This was clearly illustrated by Freidheim.116 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 risks117 and quality control issues that have not
been resolved.118
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
111 W. E. Olson, The Accounting Profession in the 20th Century, THE CPA J. (July 1999).
112 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).
113 Id.
114 Van Alstyne, supra note 8.
115 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).
116 Freidheim, supra note 14, for a discussion on the history of networks.
117 See infra Chapter 7, Regulations and Other Legal Considerations for Networks.
118 “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 Four’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 Four 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 -
