Page 84 - Professional Services Networks
P. 84
The Handbook: Law Firm Networks
The matter is not over. Even though International was dismissed, it still must prove why they should not be
liable.376 While the Seidman verdict was dismissed on the evidence that the judge permitted in the trial, the
issues of the negligence of Seidman377 and damages remain open.
In summary, the branding of accounting firms as integrated companies is now over.378 New rules have been
established by case law and regulations. Accounting groups must address whether they are going to be
networks or associations.379 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.380
Step 1: Review structure – e.g., ownership of IP, audit methodology, etc.381
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
376 Id.
377 Philip Smith, International Networks Survey: the Big Chill, ACCOUNTANCY AGE (May 27, 2010),
www.accountancyage.com/aa/feature/1809718/international-networks-survey-chill.
378 Philip Smith, Networks Survey: Global Risk, ACCOUNTANCY AGE (November 2008),
www.accountancyage.com/print_artice/aa/feature/1748284/networks-survey-global-risk: “Crucially, this is why many of the organizations are
bending over backward to stress they are not networks, as defined by the EU and other organizations such as IFAC. To claim to be one seamless firm
without national boundaries might be very appealing in marketing terms, it is a complete nightmare as far as the lawyers are concerned.”
379 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.”
380 BDO International Webinar, MAYER BROWN, www.mayerbrown.com/public_docs/BDO_International_Webinar_Slides.pdf.
381 Smith, supra note 357.
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The matter is not over. Even though International was dismissed, it still must prove why they should not be
liable.376 While the Seidman verdict was dismissed on the evidence that the judge permitted in the trial, the
issues of the negligence of Seidman377 and damages remain open.
In summary, the branding of accounting firms as integrated companies is now over.378 New rules have been
established by case law and regulations. Accounting groups must address whether they are going to be
networks or associations.379 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.380
Step 1: Review structure – e.g., ownership of IP, audit methodology, etc.381
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
376 Id.
377 Philip Smith, International Networks Survey: the Big Chill, ACCOUNTANCY AGE (May 27, 2010),
www.accountancyage.com/aa/feature/1809718/international-networks-survey-chill.
378 Philip Smith, Networks Survey: Global Risk, ACCOUNTANCY AGE (November 2008),
www.accountancyage.com/print_artice/aa/feature/1748284/networks-survey-global-risk: “Crucially, this is why many of the organizations are
bending over backward to stress they are not networks, as defined by the EU and other organizations such as IFAC. To claim to be one seamless firm
without national boundaries might be very appealing in marketing terms, it is a complete nightmare as far as the lawyers are concerned.”
379 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.”
380 BDO International Webinar, MAYER BROWN, www.mayerbrown.com/public_docs/BDO_International_Webinar_Slides.pdf.
381 Smith, supra note 357.
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