Big Four (audit firms) The Big Four are the four largest international
professional services networks, offering audit, assurance, tax, consulting, advisory, actuarial,
corporate finance, and legal services. They handle the vast majority of audits for publicly
traded companies as well as many private companies, creating an oligopoly in auditing large companies.
It is reported that the Big Four audit 99% of the companies in the FTSE 100, and 96%
of the companies in the FTSE 250, an index of the leading mid-cap listing companies.
The Big Four firms are shown below, with their latest publicly available data.
This group was once known as the "Big Eight", and was reduced to the "Big Six" and then
"Big Five" by a series of mergers. The Big Five became the Big Four after the demise
of Arthur Andersen in 2002, following its involvement in the Enron scandal.
BDO and Grant Thornton are the fifth and sixth largest firms respectively.
Legal structure None of the Big Four firms is 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 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
perform external professional services, and do not own or control the member firms. They
are similar to law firm networks found in the legal profession.
In many cases each member firm practises in a single country, and is structured to comply
with the regulatory environment in that country. In 2007 KPMG announced a merger of four member
firms (in the United Kingdom, Germany, Switzerland and Liechtenstein) to form a single firm.
Ernst & Young also includes separate legal entities which manage three of its four areas:
Americas, EMEIA (Europe, The Middle East, India and Africa), and Asia-Pacific. (Note:
the Japan area does not have a separate area management entity). These firms coordinate
services performed by local firms within their respective areas but do not perform services
or hold ownership in the local entities. The figures in this article refer to the combined
revenues of each network of firms. Mergers and the Big Auditors
Since 1989, mergers and one major scandal involving Arthur Andersen have reduced the
number of major professional-services firms from eight to four.
Big 8 The firms were called the Big 8 for most of
the 20th century, reflecting the international dominance of the eight largest firms (presented
here in alphabetical order): Arthur Andersen (until its closure in 2002
for a conviction related to the Enron scandal which was later overturned by the US Supreme
Court) Arthur Young & Co.
Coopers & Lybrand (until 1973 Cooper Brothers in the UK and Lybrand, Ross Bros., & Montgomery
in the United States) Ernst & Whinney (until 1979 Ernst & Ernst
in the United States and Whinney Murray in the UK)
Deloitte Haskins & Sells (until 1978 Haskins & Sells in the United States and Deloitte
& Co. in the UK) Peat Marwick Mitchell (later Peat Marwick,
then KPMG) Price Waterhouse
Touche Ross Most of the Big 8 originated in alliances
formed between British and U.S. audit firms in the 19th or early 20th centuries. Price
Waterhouse was a UK firm which opened a U.S. office in 1890 and subsequently established
a separate U.S. partnership. The UK and U.S. 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. The firms' initial international expansion
was driven by the needs of British and U.S.-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 Klynveld
Main Goerdeler (KMG) group to become KPMG Peat Marwick, later known simply as KPMG.
Big 6 Competition among these 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. 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. Elsewhere, the local firm in Malaysia merged
with Arthur Andersen. Big 5
The Big 6 became the Big 5 in July 1998 when Price Waterhouse merged with Coopers & Lybrand
to form PricewaterhouseCoopers. Big 4
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, Spain and Brazil,
and PricewaterhouseCoopers (now known as PwC) in China and Hong Kong.
2002 saw the passage of the Sarbanes–Oxley Act into law, providing strict compliance
rules to both businesses and their 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 firm in the industry. In 2011, PwC re-gained the first place with 10% revenue
growth. In 2013, these two firms still claim the top two spots with only $200 million or
0.5% revenue difference. However, Deloitte has seen faster growth than PwC over the last
few years indicating that they may reclaim the #1 spot in future years.
Arthur Andersen (2001)
Developed from Andersen, Delany Developed from Andersen, Delany
EY (2013)
Ernst & Young (1989)
Arthur Young (1968) Ernst & Whinney (1979)
Ernst & Ernst (US) Whinney Murray (UK)
Whinney, Smith & Whinney Ernst & Young (1989)
Arthur Young (1968) Ernst & Whinney (1979)
Ernst & Ernst (US) Whinney Murray (UK)
Whinney, Smith & Whinney Arthur Young (1968)
Ernst & Whinney (1979)
Ernst & Ernst (US) Whinney Murray (UK)
Whinney, Smith & Whinney Ernst & Ernst (US)
Whinney Murray (UK) Whinney, Smith & Whinney
PwC (2010)
PricewaterhouseCoopers (1998) Coopers & Lybrand (1973)
Cooper Brothers (UK) Lybrand, Ross Bros, Montgomery (US)
Price Waterhouse PricewaterhouseCoopers (1998)
Coopers & Lybrand (1973)
Cooper Brothers (UK) Lybrand, Ross Bros, Montgomery (US)
Price Waterhouse PricewaterhouseCoopers (1998)
Coopers & Lybrand (1973)
Cooper Brothers (UK) Lybrand, Ross Bros, Montgomery (US)
Price Waterhouse Deloitte Touche Tohmatsu
Deloitte & Touche (1989)
Deloitte Haskins & Sells (1978)
Deloitte & Co. (UK) Haskins & Sells (US)
Touche Ross (1960)
Touche, Ross, Bailey & Smart
Ross, Touche (Canada) George A. Touche (UK)
Touche, Niven, Bailey & Smart (US)
Touche Niven Bailey
A. R. Smart
Tohmatsu & Co. (Japan) Deloitte & Touche (1989)
Deloitte Haskins & Sells (1978)
Deloitte & Co. (UK) Haskins & Sells (US)
Touche Ross (1960)
Touche, Ross, Bailey & Smart
Ross, Touche (Canada) George A. Touche (UK)
Touche, Niven, Bailey & Smart (US)
Touche Niven Bailey
A. R. Smart Deloitte Haskins & Sells (1978)
Deloitte & Co. (UK) Haskins & Sells (US)
Touche Ross (1960)
Touche, Ross, Bailey & Smart
Ross, Touche (Canada) George A. Touche (UK)
Touche, Niven, Bailey & Smart (US)
Touche Niven Bailey
A. R. Smart Touche, Ross, Bailey & Smart
Ross, Touche (Canada) George A. Touche (UK)
Touche, Niven, Bailey & Smart (US)
Touche Niven Bailey
A. R. Smart Ross, Touche (Canada)
George A. Touche (UK) Touche, Niven, Bailey & Smart (US)
Touche Niven Bailey
A. R. Smart Touche Niven
Bailey A. R. Smart
Tohmatsu & Co. (Japan) KPMG (1987)
Peat Marwick Mitchell (1925)
William Barclay Peat (UK) Marwick Mitchell (US)
KMG
Klynveld Main Goerdeler
Klynveld Kraayenhof (Netherlands) Thomson McLintock (UK)
Main Lafrentz (US)
Deutsche Treuhand Gesellschaft (Germany) Peat Marwick Mitchell (1925)
William Barclay Peat (UK) Marwick Mitchell (US)
KMG
Klynveld Main Goerdeler
Klynveld Kraayenhof (Netherlands) Thomson McLintock (UK)
Main Lafrentz (US)
Deutsche Treuhand Gesellschaft (Germany) Klynveld Main Goerdeler
Klynveld Kraayenhof (Netherlands) Thomson McLintock (UK)
Main Lafrentz (US) Klynveld Kraayenhof (Netherlands)
Thomson McLintock (UK) Main Lafrentz (US)
Deutsche Treuhand Gesellschaft (Germany) 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.
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.
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 required
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. Current discussions in the UK consider outlawing
such clauses. 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. It is reported that the Big Four audit all but one
of the companies that constitute the FTSE 100, and 240 of the companies in the FTSE
250, an index of the leading mid-cap listing companies.
In Ireland, the Director of Corporate Enforcement, in February 2011 said, auditors "report surprisingly
few types of company law offences to us", with the so-called "big four" auditing firms
reporting the least often to his office, at just 5pc of all reports.
Global member firms