RSS feedsOver the past 20 years or so, increasing globalisation has driven partnerships to build alliances with firms in disparate jurisdictions. They have done this to satisfy equally disparate accounting and auditing regulations. For some firms, the need to work more closely with others abroad has led them to be more competitive against the Big Four (or more precisely their predecessor international firms).
The irony in this is that although the Big Four are, in the legal sense, organisations of independent members firms, they still have the advantage of a single brand and presence that makes them the natural stop for clients of a certain size with cross-border accountancy needs.
The importance of the ‘network’ in the current regulatory landscape is perhaps most graphically demonstrated by the members of the Forum of Firms, the IFAC initiative begun in 2002 to establish some standard for transnational accounting.
The list of founding and prospective networks of the Forum of Firms announced last January shows the Big Four ranking alongside other smaller partnerships and networks including one with a strong regional base in the Middle East, plus two Francophile networks. Contrary to the saying, size, it would seem, does not matter.
A shining example
The European Union is a case in point. As it strives to harmonise regulations and practices across its member states while maintaining transparency and creating a regulatory infrastructure that upholds independence and avoids conflict of interest, it must also take on board the reality that quality control across international jurisdictions might be better achieved by larger organisations, as IFAC’s Transnational Accounting Committee (TAC), which oversaw the creation of the Foru of Firms, has had to do.
One requirement is for members to demonstrate quality control globally across their respective organisations. Even though the process involved is a kind of self-assessment, it is nonetheless rigorous and, therefore, onerous. On the other hand, Forum of Firms membership does not exclude smaller regionally-focused organisations, and this quality control requirement would not be beyond such a network in any region.
Global harmonisation
The real aim is global harmonisation, and the spread of IFRS across accounting jurisdictions is gaining momentum. Even in the US, firms and companies seem resigned, even committed, to this principles-based standard. Can we look to a future with networks on exactly the same footing as the Big Four?
With regulators keen to regulate, network-hood may have some disadvantages beyond onerous quality control procedures including, possibly, a shared liability. The legal implications of current and prospective legislations, which vary from country to country, are being sifted through.
With legislation, including the EU statutory audit (revised 8th company law) directive taking the lead from IFAC, the most useful definition is one embodied in its code of ethics, which defines a network as a larger structure that (a) is aimed at co-operation and (b) is clearly aimed at profit or cost sharing or shares common ownership; control or management; common quality control policies; common business strategy; the use of a common brand name or a significant part of professional resources.
The International Association of Practicing Accountants (IAPA) is just one of the associations of independent firms that has reassessed its status in the light of the new regulation.
Jan Huygens, chairman of IAPA’s European region, says: ‘Our association is not subject to the regulation applicable to “networks” as defined in IFAC/EU regulation though it remains to be seen how this definition will be promulgated at the national level.
‘It is important to stress that quality is not compromised by remaining outside the “network” definition: we continue to require all applicant firms to undergo a rigorous admissions procedure and we also monitor the satisfactory completion of assignments referred between our member firms.’
Will other groups of independent firms follow? Even those that don’t call themselves networks in the Forum of Firms are, in some way, affiliated to a network or association that enables them to operate the quality control demanded by their membership.
It remains to be seen how regulators, legislators and the media including Best Practice decide on a new categorisation.
It's a small world after all
Like it or not, the world is getting smaller, thanks to e-communication, an increasingly mobile global workforce and the business potential of overseas markets. So, when Leicester-based chartered accountants Rowleys decided the time was right to sharpen its competitive edge, the opportunities offered by joining an accounting network were too good to be true.
Rowleys, founded in 1922, has built up a solid client base of SMEs. With five directors and a team of around 30, the practice remains a comfortable size to offer services with a personal touch in the traditional way - something it was keen to retain in any future development.
Looking back at the factors that led to the move to join the MGI network, Paula Swann-Jones, practice director at Rowleys, explains that when tendering for larger projects the firm would lose out to mid-tier and national firms, 'with international links we didn't have'.
She adds: 'We could have looked for a takeover or merger, but we wanted to stay the size we are and keep our independence. And when we looked at other network organisations, cost and coverage were issues. Nothing really ticked all the boxes.'
Rowleys was drawn to MGI because of its international links. 'We knew more and more of our clients were already trading abroad or looking to gain international connections, something that ten or 20 years ago wouldn't have been the case.'
While MGI has other UK members, Rowleys did not see competition issues. In fact, the firm has been able to work with the others - seemingly to the benefit of all. 'We also liked the fact that there are a limited number of MGI firms in the UK, so there would be no competition issues, but we could all benefit by sharing knowledge, expertise and experience, to improve our profitability and performance.'
The opportunity to build links with fellow MGI members in the UK and around the world has been of particular value to Swann-Jones.
'We've attended UK, European and worldwide meetings, including the world AGM in Amsterdam last October. As a result, we've built valuable personal relationships with people across the globe and we are going to continue to meet those people at every opportunity.
Since joining the network, Rowleys has worked with MGI firms in Dubai, where a client moved his whole company, and in Prague to help another UK client with administration and tax issues in setting up a manufacturing base.
Access to local tax knowledge has also been a major advantage of network membership, and the firm has even undertaken stock-taking work for other UK members. 'Something else that has come out of our membership is the opportunity for some of our team to gain experience working for other MGI practices in the UK. That has been interesting, because we can learn from how other firms operate. Now we're looking at worldwide exchanges.'
Swann-Jones expects further advantage to arise from members during the firm's second 12 months as an MGI member, and feels the firm is already treated more seriously by potential clients.
'As we build more relationships with more MGI firms, I can only see more work developing from that as success breeds success.'
Roger White is MD of Pendry White
