Big Four accounting firms
The Big Four are the four largest professional services networks in the world: Deloitte, EY, KPMG, and PwC. They are the four largest global accounting networks as measured by revenue.[1] The four are often grouped because they are comparable in size relative to the rest of the market, both in terms of revenue and workforce; they are considered equal in their ability to provide a wide scope of professional services to their clients; and, among those looking to start a career in professional services, particularly accounting, they are considered equally attractive networks to work in, because of the frequency with which these firms engage with Fortune 500 companies.
The Big Four all offer audit, assurance, taxation, management consulting, valuation, market research, actuarial, corporate finance, and legal services to their clients. A significant majority of the audits of public companies, as well as many audits of private companies, are conducted by these four networks.
Until the late 20th century, the market for professional services was actually dominated by eight networks which were nicknamed the "Big Eight". The Big Eight consisted of Arthur Andersen, Arthur Young, Coopers & Lybrand, Deloitte Haskins and Sells, Ernst & Whinney, Peat Marwick Mitchell, Price Waterhouse, and Touche Ross.
The Big Eight gradually reduced due to mergers between these firms, as well as the 2002 collapse of Arthur Andersen, leaving four networks dominating the market at the turn of the 21st century. In the United Kingdom in 2011, it was reported that the Big Four account for the audits of 99% of the companies in the FTSE 100 Index, and 96% of the companies in the FTSE 250 Index, an index of the leading mid-cap listing companies.[2] Such a high level of industry concentration has caused concern, and a desire among some in the investment community for the UK's Competition & Markets Authority (CMA) to consider breaking up the Big Four. In October 2018, the CMA announced it would launch a detailed study of the Big Four's dominance of the audit sector. In July 2020, the UK Financial Reporting Council told the Big Four that they must submit plans by October 2020 to separate their audit and consultancy operations by 2024.[3]
Legal structure
[edit]None of the "firms" within the Big Four is actually a single firm; rather, they are professional services networks. Each is a network of firms, owned and managed independently, which have entered into agreements with the other member firms in the network to share a common name, brand, intellectual property, and quality standards. Each network has established a global entity to co-ordinate the activities of the network.
Until 2020, KPMG[4] was the only Big Four firm not registered as a UK private company, but rather the co-ordinating entity was a Swiss association (verein). However, KPMG International changed its legal structure from a verein to a co-operative under Swiss law in 2003,[5] then to a UK limited company in 2020.[4] For Deloitte,[6] PwC[7] and Ernst & Young,[8] the co-ordinating entity is a UK limited company. Those entities do not themselves perform external professional services, nor do they own or control the member firms. Nevertheless, these networks colloquially are referred to as "firms" for the sake of simplicity and to reduce confusion with lay-people. These accounting and professional services networks are similar in nature to how law firm networks in the legal profession work.
In many cases, each member firm practices in a single country, and is structured to comply with the regulatory environment in that country.
Ernst & Young also includes separate legal entities which manage its three geographic areas: the Americas, Asia-Pacific, and EMEIA (Europe, the Middle East, India and Africa) groups.[9] These entities coordinate services performed by local firms within their respective areas, but do not perform services or hold ownership in the local entities.[10] There are rare exceptions to this convention; in 2007, KPMG announced a merger of four internationally distinct member firms (in the United Kingdom, Germany, Switzerland and Liechtenstein) to form a single firm, KPMG Europe LLP.[11]
History of mergers
[edit]Since the 1980s, numerous mergers and one major scandal involving Arthur Andersen, have reduced the number of major professional-services firms from eight to four.
Big Eight
[edit]The firms which came to be known as the "Big Eight" originated in various UK and US audit firms established in the 19th or early 20th centuries and later merged together. The firms' initial international expansion was driven by the needs of British and American based multinationals for worldwide service. They expanded by forming local partnerships, or by forming alliances with local firms. Arthur Andersen was the exception: the firm originated in the United States, and then expanded internationally by establishing its own offices in other markets, including the United Kingdom.
In 1932, Fortune published an article listing the 15 largest American CPA firms by number of public corporation clients. At this point in time, Price, Waterhouse and Co. was far and away the most successful of the firms with more than double the clients compared to the firms in the second and third spots.[12]
Rank | Firm | Number of Clients | Most Notable Client | Today Part of |
---|---|---|---|---|
1 | Price, Waterhouse and Co. | 146 | U.S. Steel | PwC |
2 | Haskins and Sells | 71 | General Motors | Deloitte |
3 | Ernst and Ernst | 71 | Chrysler | EY |
4 | Peat, Marwick, Mitchell and Co. | 56 | International Shoe | KPMG |
5 | Arthur Young and Co. | 49 | Swift and Company | EY |
6 | Lybrand, Ross Bros. and Montgomery | 48 | AT&T | PwC |
7 | Touche, Niven and Co. | 27 | Fox Film | Deloitte |
8 | Arthur Andersen and Co. | 24 | Montgomery Ward | N/A |
9 | Deloitte, Plender, Griffiths and Co. | 15 | American Sugar Refining Company | Deloitte |
10 | Barrow, Wade, Guthrie and Co. | 12 | Texas Gulf Sulphur | KPMG |
11 | Audit Co. of New York | 11 | Woolworth | PwC |
12 | Loomis, Suffern and Fernald | 10 | Adams Express | PwC |
13 | F. W. Lafrentz and Co. | 10 | Corn Products | KPMG |
14 | Miller, Donaldson and Co. | 8 | American Chicle | Deloitte |
15 | Leslie, Banks and Co. | 7 | American Brake Shoe and Foundry | PwC |
N/A | All others | 136 | N/A | N/A |
N/A | Companies not reporting names of auditors | 355 | N/A | N/A |
N/A | Total | 1,056 | N/A | N/A |
From the 1930s through the 1950s, audit firms expanded their national sizes and their service offerings. After the Wall Street Crash of 1929, numerous regulations were put into place by the federal government to ensure that investors were able to view accurate and detailed financial information. As a result of the fierce competition between themselves, many of the firms merged together to further expand their practices and geographic reach. These mergers led to a few name changes as the firms embraced a larger identity. In 1947, Touche, Niven and Co. merged with George Bailey and Co. and Allen R. Smart and Co. to become Touche, Niven, Bailey and Smart (TNBS). In 1950, Barrow, Wade, Guthrie and Co. merged into Peat, Marwick, Mitchell and Co., which kept the more notable PMM name. In 1955, the Audit Co. of New York merged into Price, Waterhouse and Co., again keeping PW as the firm name. In 1958, two of the firms listed on Fortune list merged into larger firms: Loomis, Suffern and Fernald was assumed by Lybrand, Ross Bros. and Montgomery while Miller, Donaldson and Co. was assumed by Haskins and Sells. Finally, in 1960, TNBS merged with the Canadian accounting firm Ross to form Touche, Ross, Bailey and Smart (later simplified in 1969 to Touche Ross).[13]
By 1960, business among the CPA firms had consolidated such that the top eight firms audited about 80% of all firms listed with the SEC. Around this time the term "Big Eight" came to be used to describe these CPA firms' dominance of the market. Fortune published an article in the same year listing these firms along with their number of partners, offices, and estimated gross revenues.[14]
Rank | Firm | Number of Partners | Number of Offices | Est. Gross Revenue (millions USD) |
---|---|---|---|---|
1 | Peat, Marwick, Mitchell and Co. | 190 | 60 | 45 |
2 | Arthur Andersen and Co. | 171 | 28 | 40 |
3 | Ernst and Ernst | 132 | 95 | 36 |
4 | Price, Waterhouse and Co. | 101 | 40 | 35 |
5 | Haskins and Sells | 176 | 36 | 33 |
6 | Lybrand, Ross Bros. and Montgomery | 126 | 35 | 28 |
7 | Arthur Young and Co. | 104 | 28 | 26 |
8 | Touche, Ross, Bailey and Smart | 71 | 27 | 17 |
In the following 20 years, the consolidation pattern continued. The two remaining firms from the top 15 in 1932 outside of the Big Eight in 1960 were merged in 1963 and 1967, respectively: F. W. Lafrentz and Co. with Main and Co. to form Main Lafrentz and Co. (later merging with Thomson, McLintock and Co., a British firm, to form McLintock Main Lafrentz International or MMLI in 1969) and Leslie, Banks and Co. into Lybrand, Ross Bros. and Montgomery. Six years later, in 1973, LRBM merged with the British Cooper Bros. and Co. to form Coopers and Lybrand. In 1978, Deloitte, Plender, Griffiths and Co. merged with Haskins and Sells to become Deloitte, Haskins and Sells and one year later Ernst and Ernst merged its practice with Whinney, Murray and Co. to become Ernst and Whinney.[15] As 1980 arrived, the Big Eight were known as the following:
- Arthur Andersen
- Arthur Young
- Coopers & Lybrand
- Deloitte, Haskins & Sells
- Ernst & Whinney
- Peat, Marwick, Mitchell and Co.
- Price, Waterhouse and Co.
- Touche Ross
In the 1980s the Big Eight, each with global branding, adopted modern marketing and grew rapidly. They merged with many smaller firms. KPMG was the result of one of the largest of these mergers. In 1987, Peat Marwick merged with the Klynveld Main Goerdeler group (which included the aforementioned MMLI) to become KPMG Peat Marwick, rebranding in 1995 to simply KPMG.
Big Six
[edit]Competition among these firms intensified, and the Big Eight became the Big Six in 1989. In that year, Ernst & Whinney merged with Arthur Young to form Ernst & Young in June, and Deloitte, Haskins & Sells merged with Touche Ross to form Deloitte & Touche in August.
The Big Six after both mergers occurred were:
- Arthur Andersen
- Coopers & Lybrand
- Deloitte & Touche
- Ernst & Young
- KPMG
- Price Waterhouse
There has been some merging of ancestor firms, in some localities, which would aggregate brands belonging to the Big Four today, but in different combinations than the present-day names would otherwise suggest. For example, the United Kingdom local firm of Deloitte, Haskins & Sells merged instead with the United Kingdom firm of Coopers & Lybrand. The resulting firm was called Coopers & Lybrand Deloitte, and the local firm of Touche Ross kept its original name. It was not until the mid-1990s that both UK firms changed their names to match those of their respective international organizations. Meanwhile, in Australia, the local firm of Touche Ross merged instead with KPMG.[16][17] It is for these reasons that the Deloitte & Touche international organization was known as DRT International (later DTT International), to avoid use of names which would have been ambiguous, as well as contested, in certain markets.[citation needed]
Big Five
[edit]In July 1998, the Big Six became the Big Five when Price Waterhouse merged with Coopers & Lybrand to form PricewaterhouseCoopers.
The Big Five at this point in time were:[18]
- Arthur Andersen
- Deloitte & Touche
- Ernst & Young
- KPMG
- PricewaterhouseCoopers
Big Four
[edit]Finally, the insolvency of Arthur Andersen stemming from their involvement in the 2001 Enron Scandal produced the Big Four:
- Deloitte & Touche (now known as Deloitte)
- Ernst & Young (now known as EY)
- KPMG
- PwC
The Enron collapse and ensuing investigation prompted scrutiny of the company's financial reporting and its long time auditor, Arthur Andersen. The company was indicted for obstruction of justice for shredding documents related to the audit of Enron. The resulting conviction, although later overturned, doomed Arthur Andersen, because most clients dropped the firm, and the company was not allowed to take on new clients while they were under investigation. Most of Arthur Andersen’s international practices were sold to members of what is now the Big Four – notably EY globally; Deloitte in the United Kingdom, Canada, Spain, and Brazil; and PwC in China and Hong Kong.
Big Four merger history
[edit]The Big Four were all derived from a series of global mergers. The charts below show year of formation through merger, or adoption of single brand name.
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Revenue comparison
[edit]In 2010, Deloitte, with its 1.8% growth, was able to outpace PricewaterhouseCoopers' 1.5% growth, gaining "first place" in revenue size, and became the largest firm in the professional services industry. In 2011, PwC re-gained first place with 10% revenue growth. In 2013, these two firms claimed the top two spots with only a $200 million revenue difference, that is, within half a percent. However, Deloitte saw faster growth than PwC over the next few years (largely due to acquisitions) and reclaimed the title of largest of the Big Four in Fiscal Year 2016.[19][20]
It was estimated that the Big Four had about a 67% share of the global accountancy market in 2012, while most of the rest was divided among so called mid-tier players, such as BDO, Crowe Global and Grant Thornton.[21]
Rank | Firm | Fiscal year ending & ref. |
Revenues (US$) |
Revenue gap % to next largest |
Revenue gap % to top firm |
Employees | Revenue per employee |
Audit & Assurance |
Tax & Legal |
Consulting & Advisory |
---|---|---|---|---|---|---|---|---|---|---|
1st | Deloitte | 2023-05-31[22][23] | $64.9 bn ( $5.6 bn, 9.4%) |
Top firm (Top firm PY) |
Top firm (Top firm PY) |
456,826 ( 45,049, 10.9%) |
$142,067 ( −$1,882, −1.3%) |
$12.3 bn ( $0.9 bn, 7.9%) |
$10.3 bn ( $0.4 bn, 4.0%) |
$42.5 bn ( $4.4 bn, 11.5%) |
2nd | PwC | 2023-06-30[24] | $53.1 bn ( $2.8 bn, 5.6%) |
−18% vs Deloitte (−15%% vs Deloitte PY) |
−18% (−15%% PY) |
364,000 ( 36,000, 11.0%) |
$145,879 ( −$7,475, −4.9%) |
$18.7 bn ( $0.7 bn, 3.9%) |
$11.8 bn ( $0.2 bn, 1.7%) |
$22.6 bn ( $1.9 bn, 9.2%) |
3rd | EY | 2023-06-30[25] | $49.4 bn ( $4.0 bn, 8.8%) |
−7% vs PwC (−10%% vs PwC PY) |
−24% (−23%% PY) |
395,442 ( 30,043, 8.2%) |
$124,924 ( $676, 0.5%) |
$15.1 bn ( $0.7 bn, 4.9%) |
$12.1 bn ( $0.8 bn, 7.1%) |
$22.2 bn ( $2.5 bn, 12.7%) |
4th | KPMG | 2023-09-30[26] | $36.4 bn ( $1.8 bn, 5.2%) |
−26% vs EY (−24%% vs EY PY) |
−44% (−42%% PY) |
273,424 ( 8,424, 3.2%) |
$133,127 ( $2,561, 2.0%) |
$12.6 bn ( $0.7 bn, 5.9%) |
$7.9 bn ( $0.5 bn, 6.8%) |
$15.7 bn ( $0.3 bn, 1.9%) |
Total | $203.8 bn ( $14.9 bn, 7.3%) |
— | — | 1,489,692 ( 119,342, 8.7%) |
$136,807 ( $1,552, 1.1%) |
$58.7 bn ( $3.0 bn, 5.4%) |
$42.1 bn ( $1.9 bn, 4.7%) |
$103.0 bn ( $9.1 bn, 9.7%) |
- Deloitte: Consulting, Financial Advisory, Risk Advisory (F2023 financial statement categories)
- PwC: Advisory (F2023 financial statement categories)
- EY: Consulting, Strategy and Transactions (F2023 financial statement categories)
- KPMG: Advisory (F2023 financial statement categories)
Revenue comparison charts
[edit]Big Four Accounting Firm Revenues (US$ bn)
Graphs are unavailable due to technical issues. There is more info on Phabricator and on MediaWiki.org. |
Revenue gap to largest firm (%)
Revenue gap to largest firm (US$ bn)
Audit & Assurance Revenue (US$ bn)
Tax Revenue (US$ bn)