The "BIG FOUR" - The four accounting firms - by Wendy Cuy

The Accounting Profession: Power, Pressure, Perfection and People

Since 2002, the accounting profession has been rocked by sensational corporate scandals and subsequent strict regulations.  The four largest global accounting firms (the ‘Big Four’) still have more challenges on the horizon.  All of them see their talented staff as the best tool to embrace these challenges and add the value demanded by clients.  Each of the Big Four believes their people are the source of their future competitive advantage.

But, most graduates who are recruited by these firms write the same exams, are affiliated to the same professional bodies and are overseen by the same external regulators.  The structure of an audit, the deadlines, the type of people who are recruited, the pressure and the opportunities are similar at each of the four accounting giants.

If talented people are the key to differentiation for each of the firms, why and how should they change and structure themselves in order to capitalize on this critical resource?  How can they each use their people to differentiate from each other?

In spite of the new networked, knowledge economy, increased regulations and changes to the profession, the organisational design and way audits are staffed and performed has generally remained the same.

Is it time for the Big Four to change?

The power of the Big Four

Ernst & Young, KPMG, PricewaterhouseCoopers and Deloitte are the four largest accounting and professional services firms.  They are the global ‘Big Four’.  In 2007, they had combined revenue of $89 billion and this is likely to exceed $100 billion in 2008.  Together they employ over 500,000 people globally.

According to AccountancyAge.com, the Big Four audit 100% of the FTSE100 and 97% of the FTSE350.  Recent research done by BDO Stoy Hayward in the UK revealed that investors would be concerned if a company switched to a non-Big Four auditor.  A third would then review their investment decisions.  Of those investors who expressed concern, they could not articulate exactly why they would be worried.  The reputation alone of the Big Four giants gives the public a sense of confidence and security.

Clearly, the Big Four accounting firms have created a powerful, global oligopoly.

Why everyone has a vested interest in the Big Four

An audit identifies whether the financial statements, prepared by management, are fairly presented and are a true reflection of the financial position of the company.  Audits provide vital confirmation and confidence to investors so that they can allocate their capital wisely.

The dominance and power of the Big Four has risen out of the importance of reliable accounting, which is the foundation of the commercial system.  They are perceived as the stewards of the integrity and reliability of global capital markets.  The integrity of capitalism depends on the integrity of accounting systems.