Concerned about recent regulation of firm networks, MSI Legal & Accounting Network Worldwide Ltd. has decided to become an association instead of a network.
The U.S. and the rest of the world are likely to implement the International Federation of Accountants' Code of Ethics, and European Union countries are adopting the European Union 8th Directive, which contain definitions of networks and associations. Both make distinctions between firm networks and associations, and place more regulations at the door of networks. The American Institute of CPAs has been looking closely at the IFAC guidance and its Professional Ethics Executive Committee may adopt it as well.
"The EU directive and IFAC code require associations to look closely at themselves and say whether they will be a network or an association," said James Mendelssohn, chief executive of MSI. "In very simple terms it's all about transparency. If you are a network, you are a more closely linked organization, and there are some responsibilities and administrative tasks you have to accomplish. Associations are less closely knit and will be recognized as such and not have the regulatory burden associated with them."
MSI has elected to become an association and will be known as the MSI Global Alliance, effective Jan. 1. MSI's approach differs from that of RSM McGladrey, which has the RSM International network and the Firm Foundation association. Mendelssohn said no firms have left the organization since MSI told them about its plans at its annual conference recently in Athens. He believes that many of the small and midsized firms targeted by MSI are not interested in becoming global consultancy services, which would make networks a more attractive option.
Another worry is liability, as networks can be targeted more easily if another firm in the network gets sued. "Liability within international organizations in the past has always been a rather gray area," said Mendelssohn. "Most of the associations have always been careful to say they're networks of independent associations." Networks do offer increased compliance and control requirements, however, which could reassure multinational companies and their clients about handling large engagements.
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