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Big Four (audit firms)

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The Big Four are the four largest international accountancy and professional services firms, which handle the vast majority of audits for publicly traded companies as well as many private companies, creating an oligopoly in auditing large companies. The Big Four firms are shown below, with their latest publicly available data:

Firm↓ Revenues↓ Employees↓ Fiscal Year↓ Headquarters↓ Source↓
Deloitte Touche Tohmatsu $26.6bn 170,000 2010  United States [1] [2]
PwC (officially PricewaterhouseCoopers) $26.6bn 161,000 2010  United Kingdom [3]
Ernst & Young $21.3bn 144,000 2010  United Kingdom [4]
KPMG $20.6bn 138,000 2010  The Netherlands [5]

This group was once known as the "Big Eight", and was reduced to the "Big Five" by a series of mergers. The Big Five became the Big Four after the near-demise of Arthur Andersen in 2002, following its involvement in the Enron scandal.



[edit] Legal structure

None of the Big Four accounting firms is a single firm. Each is a network of firms, owned and managed independently, which have entered into agreements with other member firms in the network to share a common name, brand and quality standards. Each network has established an entity to co-ordinate the activities of the network. In one case (KPMG), the co-ordinating entity is Swiss, and in three cases (Deloitte Touche Tohmatsu, PricewaterhouseCoopers and Ernst & Young) the co-ordinating entity is a UK limited company. Those entities do not themselves practice accountancy, and do not own or control the member firms.

In most cases each member firm practises in a single country, and is structured to comply with the regulatory environment in that country. However, in 2007 KPMG announced a merger of four member firms (in the United Kingdom, Germany, Switzerland and Liechtenstein) to form a single firm.

The figures in this article refer to the combined revenues of each network of firms.

[edit] Mergers and the Big Auditors

Since 1989, mergers and one major scandal involving Arthur Andersen have reduced the number of major accountancy firms from eight to four.

[edit] Big 8 (until 1987)

The firms were called the Big 8 for most of the 20th century, reflecting the international dominance of the eight largest accountancy firms:

  1. Arthur Andersen
  2. Arthur Young & Co.
  3. Coopers & Lybrand
  4. Ernst & Whinney (until 1979 Ernst & Ernst in the US and Whinney Murray in the UK)
  5. Deloitte Haskins & Sells (until 1978 Haskins & Sells in the US and Deloitte & Co. in the UK)
  6. Peat Marwick Mitchell, later Peat Marwick, then KPMG]
  7. Price Waterhouse
  8. Touche Ross

Most of the Big 8 originated in alliances formed between British and US accountancy firms in the 19th or early 20th centuries. Price Waterhouse was a UK firm which opened a US office in 1890 and subsequently established a separate US partnership. The UK and US Peat Marwick Mitchell firms adopted a common name in 1925. Other firms used separate names for domestic business, and did not adopt common names until much later: Touche Ross in 1960, Arthur Young (at first Arthur Young, McLelland Moores) in 1968, Coopers & Lybrand in 1973, Deloitte Haskins & Sells in 1978 and Ernst & Whinney in 1979.[6]

The firms' initial international expansion was driven by the needs of British and US based multinationals for worldwide service. They expanded by forming local partnerships or by forming alliances with local firms.

Arthur Andersen had a different history. The firm originated in the United States, and expanded internationally by establishing its own offices in other markets, including the United Kingdom.

In the 1980s the Big 8, each now with global branding, adopted modern marketing and grew rapidly. They merged with many smaller firms. One of the largest of these mergers was in 1987, when Peat Marwick merged with the KMG Group to become KPMG Peat Marwick, later known simply as KPMG.

[edit] Big 6 (1989–1998)

Competition among these public accountancy firms intensified and the Big 8 became the Big 6 in 1989 when 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.

Confusingly, in the United Kingdom the local firm of Deloitte, Haskins & Sells merged instead with Coopers & Lybrand. For some years after the merger, the merged firm was called Coopers & Lybrand Deloitte and the local firm of Touche Ross kept its original name. In the mid 1990s however, both UK firms changed their names to match those of their respective international organizations. On the other hand, in Australia the local firm of Touche Ross merged instead with KPMG.[7][8] 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.

[edit] Big 5 (1998–2001)

The Big 6 became the Big 5 in July 1998 when Price Waterhouse merged with Coopers & Lybrand to form PricewaterhouseCoopers.

[edit] Big 4 (2002–)

The Enron collapse and ensuing investigation prompted scrutiny of their financial reporting, which was audited by Arthur Andersen, which eventually was indicted for obstruction of justice for shredding documents related to the audit in the 2001 Enron scandal. The resulting conviction, since overturned, still effectively meant the end for Arthur Andersen. Most of its country practices around the world have been sold to members of what is now the Big Four, notably Ernst & Young globally, Deloitte & Touche in the UK, Canada and Brazil, and PricewaterhouseCoopers(now known as PwC) in China and Hong Kong.

Big 4 are sometimes referred as "Final Four"[9] due to widely held perception that competition regulators are unlikely to allow further concentration of the accounting industry and that other firms will never be able to compete with the Big 4 for top end work as there is a market perception that they are not credible as auditors or advisors to the largest corporations.

2002 saw the passage of the Sarbanes-Oxley Act into law, providing strict compliance rules to both businesses and the auditors.

In 2010 Deloitte with its 1.8% growth was able to beat PricewaterhouseCoopers with its 1.5% growth to gain first place and become the largest accounting firm on the planet.[10]

[edit] Mergers and developments

A year at the end indicates year of formation through merger or adoption of single brand name. A year in the beginning indicates date of closure of functioning or going out of prominence.

[edit] Policy issues concerning industry concentration

In the wake of industry concentration and individual firm failure, the issue of a credible alternative industry structure has been raised.[11] The limiting factor on the growth of additional firms is that although some of the firms in the next tier have become quite substantial, and have formed international networks, effectively all very large public companies insist on having a "Big Four" audit, so the smaller firms have no way to grow into the top end of the market.

Documents published in June 2010 show that some UK companies' banking covenants require them to use one of the Big Four. This approach from the lender prevents accounting firms in the next tier from competing for audit work for such companies. The British Bankers' Association said that such clauses are rare.[12]

In 2011, the UK House of Lords completed an inquiry into the financial crisis, and called for an Office of Fair Trading investigation into the dominance of the Big Four.[13] It is reported that the Big Four audit all but one of the companies that composed of FTSE 100, and 240 companies of FTSE 250, an index of the leading mid-cap listing companies.[14]

[edit] Global member firms

[edit] South Africa

  1. Deloitte Touche Tohmatsu
  2. PWC
  3. KPMG
  4. Ernst & Young

[edit] People's Republic of China

In the People's Republic of China, the big four accounting firms are affiliated with local accounting firms as under current government regulations it is forbidden for foreign firms to open fully owned firms in China.

[edit] Lebanon

  1. Deloitte Touche(M.E)
  2. Ernst & Young
  3. PWC

[edit] Morocco

  1. Deloitte Touche(M.E)
  2. Ernst & Young
  3. PWC
  4. KPMG

[edit] Syria

  1. Deloitte Touche(M.E)
  2. Ernst & Young – Abdul Kader Hussarieh and partners
  3. KPMG – Mejanni & Co. Charted Accountants and Consultants LLC
  4. PwC - Pricewaterhousecoopers

[edit] Jordan

  1. Ernst & Young
  2. Deloitte Touche(M.E)
  3. PWC
  4. KPMG

[edit] Egypt

In Egypt, the "Big auditor firms" are local affiliates of the Big Network international firms:

  1. Hazem Hassan – KPMG.[15]
  2. The Advisors – Member firm of RSM International[16]
  3. Mohamed Hilal - Grant Thornton
  4. Mostafa Shawki & Co. – Mazars [17]
  5. Mansour & Co. – PricewaterhouseCoopers
  6. Kamel Saleh — Deloitte Touche Tohmatsu (DTT)
  7. Emad Ragheb — Ernst & Young
  8. Sherin Noureldin — Moore Stephens Egypt.[18]

[edit] Indonesia

In Indonesia, there are four large auditors, all are affiliates of the Big Four:

[edit] Israel

In Israel, there are five large auditors, four of whom are affiliates of the Big Four:[22]

[edit] Japan

English names of each firm are different from Japanese ones. Ernst & Young ShinNihon LLC is 'ShinNihon Yugen-sekinin Kansa Houjin新日本有限責任監査法人,' KPMG AZSA & Co. is 'Azsa Kansa Houjinあずさ監査法人,' PricewaterhouseCoopers Aarata is 'Aarata Kansa Houjinあらた監査法人,' and Deloitte Touche Tohmatsu is 'Kansa Houjin Tohmatsu監査法人トーマツ.'

Following the discovery of the accounting fraud at Kanebo, the Financial Services Agency in Japan suspended ChuoAoyama from conducting audit work for inadequate internal controls, for two months from July 1, 2006 onwards. On July 1, 2006, PwC started a new accountancy firm in Japan, called PricewaterhouseCoopers Aarata. Unlike ChuoAoyama (renamed Misuzu subsequently),[23] which is a network firm of PwC, PricewaterhouseCoopers Aarata is a member firm of the PwC global network and will adopt its internal controls and methodologies.[24] Misuzu Audit Corp. dissolved in 2007 after one of its audit clients, Nikko Cordial, a stockbrokerage firm, was hit with an accounting scandal.[25]

[edit] Singapore

In Singapore, the affiliate firms of the Big Four are:

[edit] Malaysia

In Malaysia, the local affiliates have adopted the names of the Big Four international firms:

[edit] Republic of Korea

The following domestic accountancy firms have joined the membership of international Big Four firms.

[edit] Brazil

  1. Deloitte
  2. PWC
  3. Ernst & Young Terco
  4. KPMG

[edit] Saudi Arabia

In Saudi Arabia, the "Big Four auditors" are local affiliates of the Big Four international firms;

[edit] Turkey

In Turkey, the "Big Four auditors" are local affiliates of the Big Four international firms;

In addition to the big four, there are other affiliate companies which have weaker affiliate relations compared to affiliates of big four.

[edit] India

In India, the member firms are not permitted to change their names to match the international brands.[26] The local firms are:

[edit] Pakistan

In Pakistan, the Big Four are affiliates of the following local audit firms, which are the prominent firms of Pakistan:

[edit] The Philippines

In the Philippines, the affiliate firms of the Big Four are:

[edit] Sri Lanka

In Sri Lanka the affiliated firms of the big four are:

[edit] Sweden

[edit] Mexico

[edit] Argentina

[edit] Bangladesh

[edit] Nigeria

[edit] References

  1. ^ "Deloitte nudges ahead of PwC as largest global firm". 
  2. ^ "Deloitte ranked number one consulting provider globally by revenue". 
  3. ^ "Total network revenues rise. Advisory business returns to strong growth". PwC. 
  4. ^ "Ernst & Young reports fiscal year 2010 global revenues of US$21.3 billion". Reuters. 2009-09-30. 
  5. ^ "KPMG International Annual Review 2010". KPMG. Retrieved 2011-02-09. 
  6. ^ Institute of Chartered Accountants in England & Wales: Firms' family trees
  7. ^ Deloitte: Our domestic routes
  8. ^ Alison Leigh Cowan (1989-12-05). "Deloitte, Touche Merger Done". New York Times. 
  9. ^ Final Four
  10. ^
  11. ^ Lawrence A. Cunningham, Too Big to Fail: Moral Hazard in Auditing and the Need to Restructure the Industry Before It Fails, Columbia University Law Review
  12. ^ Big-Four-only clauses are rare: BBA, Accountancy Age, 18 Jun 2010
  13. ^ Adam Jones, Auditors criticised for role in financial crisis, Financial Times, 30 March 2011
  14. ^ Mario Christodoulou (2011-03-29). "UK Auditors Braced For Report Examining Role In Banking Crisis". The Wall Street Journal. 
  15. ^
  16. ^
  17. ^
  18. ^
  19. ^
  20. ^
  21. ^
  22. ^
  23. ^ Nicholas Neveling (2007-02-22). "PwC dumped Misuzu because of poor quality". Accountancy Age. Retrieved 2010-03-01. 
  24. ^
  25. ^ "PwC to shut down Japanese affiliate". Accountancy Age. 2007-02-21. Retrieved 2010-03-01. 
  26. ^ Accountancy's tangled web, Financial Times, July 25, 2006
  27. ^ E&Y website
  28. ^ KPMG website
  29. ^ Deloitte website
  30. ^ PWC website
  31. ^
  32. ^
  33. ^
  34. ^
  35. ^
  36. ^
  37. ^
  38. ^
  39. ^ Rahman Rahman Huq, KPMG. "KPMG BD". 
  40. ^ Rahman Rahman Huq, KPMG. "NK".

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