Accounting firms are simply enterprises devoted to the accounting service that the private and public sector can use.Major accounting firms represent an important industry that is worthy of study because they provide a significant knowledge base for changes in management practice and, as such, are frequently a catalyst for change within the industry. Further, their raw economic importance is impossible to ignore: In 1994, the worldwide fee income of the Big Six reached a staggering $33.5 billion (Economist, 1995, p. 62).
The members of the Big-Six accounting firms have been involved in international business for a number of years. This involvement stemmed primarily from their desire to follow important clients overseas. In seeking to serve these clients, a variety of arrangements were subsequently developed across and within these firms. To date, seven major types of arrangement have been utilized, usually varying "according to the relationship between the 'international firm' and the 'local' practices" (Daniels, Thrift, & Leyshon, 1989).
These seven types are identified as:
- The firm operates under its own international name--for example, Deloitte and Touche.
- A combined name is used where an international firm affiliates with a local firm.
- A local name is used where the local firm is totally affiliated with the international firm.
- An association or federation may be relied on to coordinate activity among member firms.
- Correspondents may be used if an international firm does not have an office in a locale and exclusively refers clients to a single local firm.
- On rare occasions, a local firm may have multiple affiliations with several international firms.
- A final case is when two or more names occur--where an international firm practices under two or more national firm names.
According to Brown, Cooperet al. (1996), the first alternative (that of a common international name), is the one usually preferred by members of the Big Six, although there are still instances where the affiliate will use an alternate name or a hyphenated one. However, the general trend has been a move to a single name and a single identity. The internationalization of the major accounting firms has been going on for many years. Two distinct periods of expansion have been identified by Daniels, Thrift, and Leyshon (1989).
The first period began in the 1890s and lasted until the start of World War II in 1939. This period was entirely demand-driven, as accounting firms in the United Kingdom supported the movement of U.K. firms setting up branches in overseas markets. The latter period (which started in 1945), had a more structured configuration as international accounting partnerships began to form. Here again, the large accounting firms were following clients who were further internationalizing their activity and moving outside their home country through foreign direct investment. However, in this case, the move by accounting firms was to provide auditing and advisory services to multinational clients.
The usual form of international expansion was via merger with national practices in a local country. Arthur Andersen was one exception to the rule, as it tried to establish its own offices, but even it has changed its approach in recent years by engaging in merger activity. If mergers are deemed impossible, the large firms may rely on one of the other alternatives listed above. On occasion, when such alternatives have been unavailable or unviable, accounting firms have established entirely new practices under the name of the parent firm. Once they become feasible, the firm operates as a separate profit center, like any other national firm, rather than as a mere branch of the parent firm sending profits back to the head office.
Whatever pattern was followed, today, the Big-Six firms have offices in virtually every country in the world. These national accounting firms are the foundation of the international organization. In addition, each of the national accounting firms has been refined to the point where it maintains a high degree of independence. With the single exception of Arthur Andersen (which is centrally directed worldwide), the Big-Six national firms now direct their own affairs, allocate profits on a national basis, and independently decide on promotion to partnership (Brown, Cooper et al., 1996, p. 59).