Journey of the Big Four: Can Accounting Companies Offer More than Audit Services


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  • Accounting Industry Transition Led by Motives of Revenue Growth, Market Share, and Competitiveness.

  • Global Accounting Firms Begin to Look Beyond Their Existing Comfortable Sources of Income.

  • The Big Four Explore the Consulting Landscape by Leveraging Its Existing Pool of Expertise and Brand Name

  • New Ventures Bring New Risks to the Management Table:

    • The Enron Scandal Hits Global Accounting Firms

    • Questions are Raised on the Credibility of Accounting Firms for Dual Role of Auditor and Consultant

    • KPMG, E&Y, PwC Sell Their Consulting Businesses

  • Overcoming Risks: The Big Four Return Back to the Consulting Game

    • The Sarbane Oxley Regulation Helps Bring Transparency and Trust Back to Clients

    • Financial Crisis of 2009 Opens Path for Consultants to Join the Big Four to Share Their Business Risks

    • Importance of Client Relations is Re-established

Who Are the Big Four?

The Big Four (known by this name since 2002) are the four largest global accounting firms, namely Ernst & Young (E&Y), PricewaterhouseCoopers (PwC), Deloitte, and Klynveld Peat Marwick Goerdeler (KPMG). Deloitte Touche Tohmatsu (Deloitte) was founded by William Deloitte in 1845. KMPG was formed in 1987 through the merger of Peat Marwick International and Klynveld Main Goerdeler (KMG). Ernst & Whinney merged with Arthur Young to create Ernst & Young in 1989. PwC was formed in 1998 through the merger of Price Waterhouse, and Coopers & Lybrand.

The Shift from Auditing to Consulting and Advisory

The Big Four had successfully established their initial brand as accounting and auditing service providers by the 1980’s. Then during the late 1980’s and 1990’s, the Big Four witnessed a transition from providing traditional services to consulting and advisory.

The companies leveraged their financial and personnel capabilities to expand into advisory and thereby create new sources of revenue. Based on the Big Four’s past performance in providing traditional services and their brand and credibility in the global markets, it made it somewhat easier for clients to trust these companies in providing consulting advice and implementing the same.

In the context of the current business environment, a traditional service such as auditing is not much lucrative in terms of revenue expansion. Moreover, auditing services can easily be automated and may become obsolete in the coming future. Hence, it made sense for these companies to explore the consulting territory.

Global Accounting Firms Face the Brunt of the Enron Controversy with the Enactment of the Sarbanes Oxley Act

The Enron scandal (Enron was an energy trading company with Arthur Andersen (previously part of the big five) as its auditor) in early 2001 exposed the fraudulent multi-billion-dollar financial scheme of Enron which cost investors billions of dollars after the company was exposed and forced to go into bankruptcy. While Arthur Andersen was not implicated in directly assisting Enron in manipulating its accounting books, the company was found to have been negligent in its role of overseeing and auditing Enron’s financials. However, Andersen was found guilty of obstruction of justice because it shredded documents related to its audits of Enron.

Arthur Andersen had the dual role of auditor and consultant and hence the market wondered if it was appropriate for an accounting firm to offer "non-audit" services to the clients it already audits. The distrust arose since market experts suspected that the auditing firms would not be vocal about the concerns that may arise during the process of auditing a client, so as to avoid conflict with the clients and ultimately losing on existing or potential consulting contracts.

Post the occurrence of various scandals, including Enron, WorldCom, and a developing scandal involving Tyco, in July 2002, the US Congress enacted the Public Company Accounting Reform and Investor Protection Act, also known as Sarbanes Oxley. Sarbanes Oxley required corporate leaders to personally certify the accuracy of their company’s financials. Some of the notable requirements included auditor reporting duties, and a restriction which prohibits auditing firms from providing non-audit related services to companies which they audit.

To eliminate confusion and regain market trust, all 3 firms except Deloitte divested their consulting divisions. During early 2000’s, PwC sold its consulting unit ‘Monday’ to IBM, KPMG’s consulting division became BearingPoint, and E&Y’s consulting business was acquired by Capgemini.

The Big Four Overcome the Enron Controversy to Re-surge as Consultancy Experts

In the year 2013, the Big Four regained its momentum and confidence in the consulting and advisory practice and it was the first time any one of these companies’ consulting revenue shadowed their traditional accounting practice. The reason was that the global financial crisis in 2009 changed the consulting scene with mid-sized strategy consultants now being open to come under the wings of the Big Four firms who offered a bigger platform and client pool.

In 2014, client spending on the management consultancy services increased. The Big Four held the biggest share of global consultancy income, with a combined 40% of the market. This was possible through the route of acquisitions (with acquisition of both niche and mainstream consulting businesses), organic growth, and recruitment of experienced professionals. According to the companies, with regard to the hurdle of audit contradicting with consulting was somewhat resolved after the enactment of the Sarbane Oxley regulation. Companies felt that the act provided more clarity and guidelines so that a transparent system was put in place, for clients to trust the Big Four for obtaining consultancy services.

In 2015, the Big Four witnessed strong growth in the cyber security consulting business. This was also achieved through the path of hiring experienced talent and acquiring businesses. The companies wanted to offer all kinds of broader services, to become the go-to place for clients.

Closing Thoughts

  • When we think about expanding a business’s market share, firstly we do so to invite opportunities that will help the company to remain relevant and increase revenue growth.

  • Now talking about entering new areas, the shift from auditing to consulting was somewhat easier for the Big Four, or so the market believed. Like any other strategic plans, it sometimes brings along business risks which even the big brand like the Big Four did not see coming.

  • How did they adapt to these risks, they chose to rely on the Sarbane Oxley regulation as an opportunity to bring transparency to their contract terms.

  • Once the client trust was regained, from a selling point of view i.e. convenience and quality, the Big Four again tried to push their new ideas that we are good at what we do and can offer various solutions from a single platform.

  • Based on this, we saw these companies begin to offer services such as cyber security, leading them to capture a significant portion of the market share.

  • Market experts believe that in the professional services business, more than expanding sources of revenue, long-term and satisfied client relations remains the key to success. This in-turn leads to more business for the company. Hence, a balance between happy clients and innovation needs to be maintained.

In Part Two of the blog coming up soon, we will discuss how technology has entered the Big Four’s businesses in the form of cloud, analytics etc. over the last 3 years and the future outlook.

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