Expertise Management by Public Accounting Firms

Abstract

This paper constructs a model of professional expertise as an attribute of an accounting firm rather than just an attribute of individual experts. This model leads to the identification of three strategies applicable to accounting firms. A Knowledge firm develops and sells proprietary knowledge to a selective clientele, whereas a Full Service firm develops and sells general professional knowledge to a broad clientele. A Relationship firm is in-between the other two firm types. Associations are hypothesized between these strategies and a variety of firm activities such as client selection, diffusion (or concentration) of expertise within the firm, sharing of expertise within the firm, and formalization of quality control processes. A questionnaire was completed by 219 audit and tax partners and consulting, insolvency and forensic accounting principals in 15 public accounting firms, including the Big Five. Results are consistent with the existence of three distinct types of firms. Results also indicate that partners are aware of local pressures that they personally face (e.g,. need to sell more services to clients) and less aware of the effect of broad structural features of the firm (e.g., size, decision aids). The key structural features that are salient to partners involve need for selectivity in choosing clients, and the need for the firm to develop specialized proprietary technical knowledge.

Keywords: Firm level expertise; Expertise management; Proprietary knowledge; Client selection; Audit firm structure; Knowledge management

JEL Classification: M49