It is true that invoices are exchanged but when viewed froma completely objective standpoint, this is completely reasonable. If there is a client with headquartered in New York, with audit teams also operating out of Chicago, Dublin and Sydney, each member firm needs to ensure that they receive their fair share of the total audit fees. A commenter above me pointed out that partners are paid at a national level; firm performance and bonus pools are also determined this way. Making it clear what an audit team did to further the audit through simple and standard billing methods not only ensures that fees for the audit are allocated properly, it also helps to bring about better budgeting and staffing in future periods which allows for a higher quality audit, which is what we are all after.

Francine’s instincts are correct here in some respects and probably off base on others. From a macro perspective, my experience is that there is not global integration, and because of liability concerns the Big 4 don’t want to be viewed in the courts as intergrated globally. Ever wonder why the Big 4 are so caught up in getting their specific legal names correct, especially as it relates to engagement letters and publications – it is because they want to demonstrate that there is no such thing as a “global firm”. Also, you should also know that profits are not shared amoung the world-wide partners; each country (i.e., Firms) has their own specific formula. However, it is often true that the certain “loans” from the strong Firms are made to support weaker Firms. In terms of audit quality, each of the Big 4 will have some basic global standards, but they are really just “belts and suspenders” type stuff. Therefore, if you compare the audit policy manual of the US Firm to say, the Japanese Firm, there are tremondous differences. usually the global board of directors, and such differences usually stem from the in-country GAAS/GAAP requirements. For example, and audit in accordance with German GAAS won’t get you all the way to US GAAS, more would have to be done.

Forgetting the market-place double-talk that all the Big 4 firms do, what they really have to, and I think actually care about, are those multi-national audits nased in the US that involve non-US operations. This is because SOX (which was effective starting in 2004 for audits of US based companies) requires the same sort of discipline of processess and controls regardless of location. Therefore, the US engagement partner now has a responsibility to get all aspects of the audit to be consistent with US GAAS, including any significant int’l ops. And, the PCAOB has the right to inspect those workpapers that were prepared etc by those international locations.

Other than the above intersection of US-based clients that have signifcant int’l ops, I would that there are substantial differences and that such effort is rather disjointed and hardly seamless. Lets face it, there are regulatory differences, huge culture differences, and different values placed auditing, all of which creates issues and concerns. I believe that Andersen addressed these issues by building international practices with people from the US Firm. Most of the other Firms essentially “created” their international networks by reaching alliance agreements with pre-existing, locally based Firms. I recall the 1980’s when one of the last large Japanese Firms was seeking an alliance with one the US Firms – basically a bidding war broke out, and the Japanese partners made off with a nice payday.

Sorry for the long post. The first step in getting to global, sort of seamless service is to harmonize the regulatory environment. Perhaps the adoption of IFRS will be a start. Another hurdle is the liability exposures – trust me when I say that virtually all the audit firms that are based outside of the US would never agree to a legal structure that would expose their assets to the US legal system. Case in point would be the Firms based in the UK – the average partners compensation there is much higher than here in the US, and they don’t face the liability issues. Why would the UK Firms give up that gravy train?

Final Four Guy

Law firms operate large, intergrated partnerships spanning dozens of countries. What makes the process of doing so with an accounting firm so different?