ig 4 Accounting Firms

Everything You Need to

Know [2017]
by Michael Stephens Last modified on October 16, 2017

Look, the Big 4 accounting firms are huge.

You already know that. (The clue is in the name)

But what makes them so special? Why are there only four? Do they just do accounting?

Well stick around because thats exactly what were going to find out in this article (and
more).

The best part?

You can use everything in this guide during your Big 4 networking conversations and
interview. Neat, eh?

So lets get started.

The Big 4 Accounting Firms

The Big 4 is a name given to a group of firms that specialize in professional services.
 The group is made up of PwC, Deloitte, EY and KPMGand professional services is a broad
term for almost any specialist service provided between two businesses.

Ok so theres four of them. But why are they called Big?

Well, their sheer size, reputation and worldwide reach means that they dominate the
field. There are many other firms that provide similar services, but they are tiny in
comparison.

Just look at the Big 4 revenue figures below!

But where did they come from? Why only four? To answer that question we must go back to
the early 1900s.

The Big Eight Accounting Firms

If we look back to 1910, there were eight large accountancy firms in the world. They were
known (surprisingly) as the Big 8.

They were:

1. Arthur Andersen
2. Coopers and Lybrand
3. Ernst & Whinney
4. Deloitte Haskins & Sells
5. Peat Marwick Mitchell
6. Price Waterhouse
7. Touche Ross
8. Arthur Young

Prior to the Big Eightduring the 19th centurythere were thousands of small accounting
firms scattered around the world. This model had historically worked very well.

But as many large UK and U.S. companies began doing business internationally, they
needed to work with accounting firms with a similar global reach.

As a result the Big Eight were formed.

It was a slow process getting to this point, where each of the slightly bigger firms partnered
with or acquired many smaller local accounting firms to eventually form the Big Eight.

But then, as business intensified towards the end of the 20th century, the bigger firms
started viewing each other with greedy eyes.

Peat Marwick Mitchell officially began the descent into the Big 4 when it completed one of
the biggest mergers to date, joining forces with a then top 20 firm Klynveld Main
Goerdeler to form KPMG.*

(*allegedly named because nobody wanted to say Klynveld Peat Marwick Mitchell Main
Goerdeler).

But that wasnt the end of the story. Further expansion and competition led to the creation
of

The Big Six Accounting Firms

After acquiring many smaller firms, the Big Eight realized the potential synergies that could
be realized by merging with each other.

In the summer of 1989, the Big Eight became the Big Seven when Ernst & Whinney
merged with Arthur Young to form Ernst & Young.

Later that same year, Deloitte, Haskins & Sells merged with Touche Ross to form Deloitte &
Touche, and complete the Big Six.

The Big Five Accounting Firms

The Big Six continued on for another decade before the next merger and the creation of the
Big Five.

This time Price Waterhouse merged with Coopers & Lybrand to

form PricewaterhouseCoopers, better know as PwC.
 The Big Four Accounting Firms
The Big Four as we know them today was completed with the collapse of Arthur Andersen
in 2002 following the Enron Scandal. Though Arthur Andersen was later acquitted of
wrongdoing, the scandal ultimately led to the collapse of the firm.

Most of Arthur Andersens staff and clients joined the remaining members of the Big Four.

[Update: Arthur Andersen has been resurrected! Only time will tell if they can rejoin the upper
echelon of professional service firms. ]

Following a number of re-brands and smaller acquisitions, the Big 4 now officially consists
of:

1. Deloitte
2. PwC
3. EY
4. KPMG

Before we dive into each of the Big 4 accounting firms in more detail, lets take a look at
what they do.

What exactly is professional services?

What the Big 4 Firms Actually Do

While accountancy still forms a large part of what these firms do today, over the years they
have expanded into hundreds of different businesses and industries.

It is no longer accurate to refer to them only as the Big 4 accounting firms.

While its true that the Big 4 do audit all but one of the Fortune 100 companies (well done to
Grant Thornton for winning that one!), audit fees equal only around one third of their total
revenues.

So where does the other 65% of revenues come from?

To answer that, lets take a quick look at the services offered by Deloitte. Their website lists
the following broad categories:

Financial Transactions
Regulatory, Forensics & Compliance
Risk & Resilience
Human Capital
 Strategy & Operations
Technology
Global Business Tax Services
Global Employer Services
Indirect Tax
Mergers & Acquisitions Services
Mergers & Acquisitions Analytics
Mergers & Acquisitions Institute
Audit
Analytics

So accounting really does only form a small (but still significant) part of what they do.

Lets go even further on this and look at what Deloitte offers under Global Business Tax
Services.

Tax transformation
Tax technology
Tax analytics
Business tax
Tax accounting
International tax
Transfer pricing
Indirect tax
Multistate tax
Tax Management Consulting
Global Employer Services
Global Investment & Innovation Incentives
US Inbound Services
Private Wealth
Foreign Account Tax Compliance Act (FATCA)
Global Tax Reset & BEPS
Common Reporting Standard

Seventeen different services comprising business tax alone! And whose betting that each of
these services can be broken down even further?

So the Big 4 are not really accounting firms these days, they are professional service
conglomerates.

Add this to the fact that Deloitte are also the biggest consulting firm in the world, it gives
you some indication of just how big these firms really are.
How the Big 4 Firms are Organized
A little known and interesting quirk about the Big 4 firms is that they are not in facts firms
at all.

They are each a network of firms that agree to operate under the same name and general
business terms.

EY France is actually a completely separate entity to EY Singapore, which is completely

separate again to EY South Africa.

You might see each local firm being referred to as a member firm.

In some cases the bigger local firms, such as those in the U.S., will strategically purchase
other smaller firms. However, it is generally within their interest to stay as separate firms as
far as possible.

The primary reason for the collapse of Arthur Andersen was due to the fact that, unlike the
other Big Five, it was one global firm. When the Enron issue hit the U.S. part of the firm it
effectively ended operations for the entire business.

Now we know what they are and how they operate, lets take a closer look at each firm
individually.

Work Culture at the Big 4 Firms

We go into greater detail on this for each firm below, but there are some general themes
when it comes to Big 4 culture.

The Big 4 work hard. These are not 9-5 jobs. You will be expected to work long hours and
may see some 70-80 hour weeks during busy season or at project close.

The Big 4 firms in general have a similar culture, primarily because they do the same work
and employ the same types of candidates, but there are differences.

The most prominent differentiator in culture is not actually the firm but the specific office.
Its surprising to some, but the EY NYC office will be more like the Deloitte NYC office than
the EY Seattle office.

Every office (or team for very large offices) has its own atmosphere determined by a few of
the most senior partners.
To understand this we asked some of our Big 4 Career LAB alumni to describe the culture in
their office. While we received some interesting replies, these were the most polarized
(about the same Big 4 firm, but different offices):

My office is open, fulfilling, team-based, challenging, enjoyable work with a really nice
boss. I love it.

Its autocratic, youre constantly being referred to as a resource, theres backbiting and
some unexplainably stupid promotion decisions.

Now I wonder which offices they work in!

PwC
PricewaterhouseCoopers, doing business under the name PwC, is the second largest
professional services firm in the world by revenue and third by number of employees. In
2016 it was the fifth largest privately held company in the U.S.

PwC is headquartered in London, U.K. and is chaired by Bob Moritz.

PwC Revenues, clients and global reach

PwC operates in 157 countries from over 700 locations. It employs 223,000 people, with a
whopping 58,081 people (more than a quarter of their workforce) joining in last year alone.

That gives you some indication of the hiring potential of the Big 4!

PwCs revenues were $35.9 billion in 2016, an increase of 7% on the prior year. Most of this
(76% to be exact) was earned in the U.S. and Western Europe.

This chart shows PwCs split of revenues by service line over the past few years.
Unlike some of the other Big 4, PwC focuses more heavily on audit services. In fact almost
43% of its revenues were from audit related services. Advisory ($11.5 billion) and tax ($9.1
billion) make up the remainder.

During 2016 PwC assisted 422 (84%) of the companies in the Fortune Global 500 list, and
410 (82%) of those in the U.S. Fortune 500 list.

PwC Work Culture

Vault Accounting 50 ranked PwC as the most prestigious accounting firm in the world for
seven consecutive years. Does that mean something?

PwC are certainly the masters of the accounting world with the largest audit fees and
biggest number of Fortune 100 audit clients. They focus a significant proportion of their
business on this.

PwC is renowned for being the more fastidious, old and slow moving organization.

While they react relatively slower to changes in the business world than others within the
Big 4 they have a very strong core of clients. This is a positive if youre a detail oriented
person who like the hierarchical nature of an organization.

In summary, PwC is the classic Big 4 accounting firm, with lots of accountants doing
accounting for some of the worlds biggest companies. They have less of a focus on
consulting and entrepreneurial businesses.

Deloitte
Deloitte is the largest professional services firm in the world both by revenue and number of
employees. Deloitte is also considered the number one consulting firm in the world by
revenue and market share.

Deloitte is nicknamed the green dot due to the period in its logo. Deloitte is headquartered
in New York, U.S., and is chaired by David Cruikshank.

Deloitte Revenues, clients and global reach

Deloittes revenues were the largest in 2016 at $36.8 billion, an increase of 9.5% on the prior
year.

Deloitte is also the largest Big 4 employer. It employs 244,400 people, with a huge 71,800
people hired in 2016.

Deloittes workforce increased 16% on the prior year, with an average of 53 applications
received for every position (less than 2% hiring rate).

Deloitte is a true professional services firm and focuses less on audit than the other firms.
Only 25% of its revenues relate to audit. On the flip side its consulting revenues were $13.1
billion in 2016, over a third of the total.

Deloitte services more consumer and industrial products businesses than the rest of the Big
4.

Deloitte Work Culture

Deloitte has consistently been named the best place to launch a career and one of the the
best places to work.

While the two firms continuously vie for the top spot in the Big 4, Deloitte is the opposite of
PwC in terms of culture.

Deloittes audit practice is 40% smaller than PwCs, which means that it has to concentrate
on its other services. This is primarily consulting, which as noted above is its biggest service
line.

Deloitte was the only Big 4 firm to retain its full consulting capability following the Enron
crisis [link].

While audit is an annual process that requires long standing and deep client relationships
that sometimes last for decades, consulting is project based and every year new projects
must be won and delivered.
This is reflected in Deloittes culture which is the most entrepreneurial and fast moving
within the Big 4.

Deloitte also invests heavily in its people, including making huge investments in facilities
like Deloitte University [link].

EY
EY is the third largest of the Big 4 and the 11th largest privately owned company in the U.S.
EY officially changed its name from Ernst & Young in 2013.

EY is headquartered in London, UK and is chaired by Mark Weinberger.

EY Revenues, Clients and Global Reach

EY earned revenues of $29.6 billion in 2016, an increase of 9.2% on the prior year. Like PwC,
EY is very focused on audit, with over 39% of its revenues coming from its assurance service
line.

In addition to audit, EY also has the second largest tax practice after PwC.

Despite lower revenues, EY employs more people (230,800) than PwC. They also increased
their headcount by 9.2% in 2016.

EY audits 23% of the Fortune 500 and provides some level of service to almost 80%.

While still a network of individual firms, EY is the most globally managed of the Big 4. They
retain a strict structure across the world with a Global board overseeing all policy and
consistency of service.

EY Work Culture
EY is in many ways a mini-PwC. They are a more traditional accounting firm than either
Deloitte or KPMG.

EY is highly focused on their core competencies of audit and tax (they have the second
largest audit and tax practices after PwC).

Like PwC, EY has significant long term relationships with many large clients. They actually
pride themselves on the length of their relationships, some lasting more than 70 years.

EY would be a good fit for anyone also considering joining PwC.

KPMG
KPMG is the smallest of the Big 4 firms by both revenue and number of employees.
Smallest is relative though as KPMG is still three times bigger than the number five
accounting firm (BDO LLP).

KPMG is headquartered in Amstelveen, the Netherlands and chaired by John Veihmeyer.

KPMG Revenue, Clients and Global Reach

KPMG has more than 700 offices in 152 countries and globally employs almost 189,000
people.

While employees numbers are significantly less than the other Big 4, KPMG is second when
it comes to revenue per employee (just behind PwCDeloitte and EY are much further
behind).

KPMG earned global annual revenues of $25.4 billion in 2016, which was an increase of 8%
over the prior year.

Like EY and PwC, KPMG also has a large audit practice as a proportion of total revenues,
coming in at almost 40%.

KPMG also has the second largest advisory practice (at $9.7 billion in revenue) after PwC.

KPMG Work Culture

KPMG is the smallest of the Big 4 but is typically considered the best in terms of work-life
balance. What it lacks in prestige it makes up for in employee engagement.

KPMG suits employees who value both their career and their personal life. Whereas some of
the Big 4 have an up or out culture, KPMG attempts to retain employees (and has the
lowest churn rate as proof).

KPMG is somewhere between the old-school accounting firm (PwC) and the more high
tech, agile consulting firm (Deloitte). While audit still form a substantial part of what they
do, their assurance practice is growing rapidly.

KPMG is also known for its sponsorship programs, sponsoring sports professionals like the
golfer Phil Mickelson.
The Future for the Big 4 Accounting
Firms
In all likelihood the Big 4 accounting firms are going to keep on growing. Their current
growth levels of around 7% 9% per year will continue as fees for existing projects increase
and their service offerings expand.

There are two factors that could change all this though. They could completely reshape the
audit landscape.

What are these factors?

Auditor independence and crypto-accounting.

Auditor independence states that an external auditor of a company must be free from any
financial relationships with that company that could impair their objectivity.

Take this example: XYZ Inc. is audited by KPMG. The KPMG audit partner that has ultimate
sign off responsibility for the audit. The partner also owns a significant number of shares in
XYZ Inc. The audit team finds a potential issue which could directly and negatively impact
the share price and asks for the partners opinion.

Do you think the partner will raise the issue which could personally cost her money? Its
unlikely

That is auditor independence, and it spreads much more widely than this example.

It is the reason why audit firms cannot provide certain services to their audit clients, such as
assisting with preparing their financial statements (they would effectively be checking their
own work).

Auditor independence is becoming stricter all the time, which is impeding the Big 4 from
providing a variety of services to their clients.

So, while auditing half of the Fortune 500 may seem great, it actually prevents you from
providing any other services to those companies, many of which may be more lucrative than
auditing.

This is an issue for all of the Big 4, but particularly PwC and EY who are focused heavily on
their audit practice.

The second issue faced by the Big 4 accounting firms could be even more of a challenge.
Have you heard of cryptocurrencies, like Bitcoin? They work by providing a completely
secure record of all transactions being completed and so are in essence unhackable.

The success of cryptocurrencies has lead cryptographers to begin thinking about alternative
uses for the technology.

One of these is the creation of internal company financial data, which is ultimately used to
create financial statements.

So if you have a completely reliable and unhackable system for collecting and recording
transactional data, where does that leave auditors, whose job it is to check this data?

Not in a good place. Thats where.

Now there will always be a requirement to check the accounting methodologies applied to
the financial statements (like should a cost be classified as gross vs. operating) but much of
the manpower requirement during an audit will be reduced.

Heres to hoping the big auditor, PwC and EY, have these factors on their radar.

But where does this leave Deloitte and KPMG?

Well, KPMG do have a fairly significant audit practice, but their tax and assurance
businesses are also strong. They do not have the core audit relationships of PwC or EY and
so would be in a slightly better position should the above factors hit hard.

Deloitte on the other hand wants these changes to come as quickly as possible.

For starters Deloitte has the smallest audit practice of the Big 4 and so stands to lose the
least. But secondly and more importantly, they have a giant consulting business.

And guess which Big 4 service line is perfectly placed to help businesses implement crypto-
accounting? Yep, consulting.

Theres some interesting changes coming soon. Even firms as large as the Big 4 arent
immune to the changing economy.

How You Can Work for the Big 4

Hands up who wants to work for the Big 4?

Ok, great. Well heres what you need to do.

1. Attend a great school (major isnt so relevant, see the vast array of services offered
above). The school should preferably be a Big 4 target school.
2. Network hard with Big 4 staff throughout your degree (especially if you do not attend a
target school)
3. Get onto Summer Leadership Programs or Internships with the Big 4 (or failing that,
intern at a well known company)
4. Interact with the relevant societies on campus, become part of the executive
5. Apply
6. Interview
7. Celebrate!

What if youre already working? Well for you the pathway is somewhat easier:

1. Network
2. Apply
3. Interview

The Big 4 are people driven organizations. Networking is imperative.