To understand the concept of ‘global network of firms” as used by the world’s largest audit firms, we need to review a case that’s closest to potentially “piercing the veil” of this sham structure.
“The appeals court’s opinion notes that BDO Seidman used BDO International’s literature, responded to its requests, and complied with its audit manuals. The international firm also had the right to review the U.S. firm’s management at any time. “BDO International did control the means — the management, audit manuals, and software — used by BDO Seidman to conduct its work for the Banco plaintiffs,” the court wrote.
Formed more than three decades ago, BDO International has 626 member-firm offices in 110 countries, according to BDO’s website. Run by a staff of fewer than 10 people working in Brussels, the organization acts as a coordinating office for all the “independent” firms, Walsh told CFO.com. Adds BDO International’s attorney, Mark Raymond of Broad and Cassel, “One article has called them a parent company. They’re not. They are simply a coordinating network to facilitate communications between numerous members.”
I would be incredulous if I hadn’t heard senior members of the firms themselves argue out of both sides of their mouths at a PCAOB Standing Advisory Group meeting in Washington DC last year. The last topic that day was, “Global Quality Control Practices.”
Go here for a podcast of the discussion.
The primary problem for the audit firms is enforcement and discipline. The only practical alternative for them if a local firm does not want to live up to the “global standards” is to kick them out of the network. We have seen that with PwC Japan and Grant Thornton Milan. But that’s an extreme step and can cause disruption for the firm, a la Arthur Andersen, but more importantly disruption for clients that depend on the “global network.”
But how “real ” is this global network? Do the firms really work together seamlessly, depending on each other without question to do work locally and bring it all together under one global partner for a large multinational?
Not exactly. Listen to the podcast and the description of the duplication of effort and lack of cooperation that often occurs.