Big Four (Accounting Firm) - Explained
What is a Big Four Accounting Firm?
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Table of ContentsWhat is a Big Four Accounting Firm? History of the Big Four Accounting FirmsControversies Surrounding the Big FourAcademic Research on Big Four Accounting Firms
What is a Big Four Accounting Firm?
The Big Four refers to the largest accounting and auditing firms in the United States. This measurement is taken by their revenue details, and not really the quality of their work, although the latter might also come in handy in this analysis. These companies offer different services like tax consulting, management consulting, property valuation, market research on the businesses, provision of legal advice and assurance on tax or business financial related issues. Most companies turn to these firms for auditing and accounting, and sometimes, they can be hired by the IRS to conduct audits. They provide expert advice on different issues. The Big Four are Deloitte, Ernst & Young, Price Waterhouse and Coopers (PwC), and KPMG.
History of the Big Four Accounting Firms
Formerly, the title of Big Four was the Big Eight, and what we currently have is as a result of an industry consolidation in 1989. The eight top firms are alphabetically given below.
- Arthur Andersen
- Arthur Young
- Coopers & Lybrand
- Deloitte Haskin & Sells
- Ernst & Whitney
- Peat Marwick Mitchell
- Price Waterhouse
- Touche Ross (U.K. and U.S.)
Through the years, mergers occurred, and this brought the numbers to what we currently have. Arthur Young merged with Ernst & Whitney to form Ernst & Young, and Deloitte Haskins and Sells merged with Touche Ross to form Deloitte. This initially reduced the number of to six firms. Afterwards, Price Waterhouse decided to merge with Cooper & Lybrand to form the Price Waterhouse and Cooper (PwC) group. A little while later, Arthur Andersen collapsed due to the shredding of Enron documents. This limited the number to just four firms, which is what we have today. The Big Four is a great employer. As of 2017, research showed that the combination of these four firms have hired approximately one million workers, which can be evenly split to approximately a quarter million employees per company. Also, that same year, their annual revenue was $31 billion, a sum which is quite large for even a total of four auditing firms. These companies perform auditing taxes for big firms and companies around the world, and they have different resources which keeps their employees at the top of the game. No matter the qualification which one possess, there are enough training programs to keep them enriched when working with these firms.
Controversies Surrounding the Big Four
There are several controversies about the Big Four, and different critics seem to have strengthened these cases. Also the Big Four has different qualified personnels and offer high quality training and auditing services, they have never been able to uncover any case of high-level fraud within a company, even with the different harms that it causes shareholders. Two notable fraud cases, that of Enron and Worldcom were not exposed by any member of the Big Four but by forensic experts in accounting. This is deemed to be weird since the Big Four performed audits on both companies. Critics stipulate that the Big Four dont want to compromise the benefits which they receive from their top paying clients by asking too much questions or by investigating suspicious records in their accounting reports. In this case, the saying of biting the hand that feeds you is highly relatable.