Do you need a recognized global network as your business consultant or a member of an association of firms? What the ranking of firms or a member firm or a correspondent firm mean for your evaluation? Here we give you an overall idea of how international accounting firms operate.

International accounting firms are either structured as integrated networks or much looser associations of independent firms. The implications of both models are significant. Networks are perceived to offer a more seamless and consistent cross-border service but run a higher risk of vicarious liability, whereas associations offer firms in different countries independence and lower vicarious liability risk but are viewed as providing a less consistent service. Big 4 and leading mid tier networks have globally coordinated quality reviews, greater use of shared branding and common audit methodologies throughout the globe and these factors distinguishes themselves from low ranked networks and associations.

IFAC Code of Ethics defines a network but the IFAC Code is only a recommendation and it is ultimately on the regulators to distinguish a network and association.

The member firms of both network and associations are independent to the headquarters and to each other, thus protecting the global office and other member firms from litigation risk in case of audit failures- a lesson learnt after collapse of Enron in 2002 and its auditor Arthur Anderson, then Big5. The global office of the network or an association is registered in a country either as a trust or association, or cooperative, or a U.K. limited liability entity. The local members have the right to use the brand in their respective countries. The headquarters do not provide audit or any other services to outsiders but coordinate the overall networks including formulating global strategies and programs.

Rankings

Ranking of CA firms is not done by IFAC, but is published each year by International Accounting Bulletin (IAB). The ranking is based on global revenue of the network (and associations) by combining revenue of all individual member firms. Revenue is the most objective criteria of ranking. Globally, ranking within top ten has high importance.

Networks in the top ten list normally adopt "One member per country" policy with few exceptions, like in large economies like USA. The level of referral is quite low and quality review can be weak in case of lower ranked firms, as much of the large multinational companies are served by Big 4 and top ten ranked mid tier firms.

Member firms and correspondent firms

Member firms represent the highest category of relationship between the representative firm and its network. They have full access to all resources of network, including use of audit soft-wares and proprietary resources. They participate in global quality control program which requires quality test by international headquarter at least once in three year. Member firms are required to comply with all requirements of network, like website, printing guidelines, reporting guidelines etc.

Correspondent firms means they are appointed only for the purpose of referring work by other member firms if the work is to be done in a country where such network do not have member firm. Correspondent firms are not part of network and do not part of global quality control program of the network. Correspondents have only limited access to resources of network and the audit soft-wares. In case of some large networks, correspondent firms are not even listed in websites.