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. Grant Thornton and BDO 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, the co-ordinating entity is Swiss,
and in three cases 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 to form a single firm. Ernst & Young also includes separate legal
entities which manage three of its four areas: Americas, EMEIA, and Asia-Pacific.. 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: Arthur Andersen
Arthur Young & Co. Coopers & Lybrand
Ernst & Whinney Deloitte Haskins & Sells
Peat Marwick Mitchell 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 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 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, to avoid use of names which would have been ambiguous 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 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 Developed from Andersen, Delany
EY Ernst & Young
Arthur Young Ernst & Whinney
Ernst & Ernst Whinney Murray
Whinney, Smith & Whinney
PwC
PricewaterhouseCoopers Coopers & Lybrand
Cooper Brothers Lybrand, Ross Bros, Montgomery
Price Waterhouse
Deloitte Touche Tohmatsu Deloitte & Touche
Deloitte Haskins & Sells Deloitte & Co.
Haskins & Sells
Touche Ross Touche, Ross, Bailey & Smart
Ross, Touche George A. Touche
Touche, Niven, Bailey & Smart Touche Niven
Bailey A. R. Smart
Tohmatsu & Co.
KPMG Peat Marwick Mitchell
William Barclay Peat Marwick Mitchell
KMG Klynveld Main Goerdeler
Klynveld Kraayenhof Thomson McLintock
Main Lafrentz
Deutsche Treuhand Gesellschaft
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
References
External links Frontpage of Deloitte Touche Tohmatsu Limited
Frontpage of KPMG Frontpage of Arthur Andersen website archived
in 1996 Frontpage of Coopers & Lybrand LLP website
archived in 1996 Frontpage of Price Waterhouse website archived
in 1997