“Big Four” Audit Oligopoly Expands Global Reach Further

But in some jurisdictions, they’re under-fire after a series of sudden corporate collapses.

By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.

The “Big Four” audit and accountancy giants — KPMG, Deloitte, Ernst & Young (EY), and PricewaterhouseCoopers (PwC) — have found themselves in the rare position of being on the back foot in a number of key global markets, in particular the UK where the government and regulators are considering breaking up the oligopolistic hold they have on the audit industry after a series of collapses of their audit clients. But that hasn’t stopped the four sprawling giants from exploring new avenues for expansion.

One of those areas is the global legal services market, estimated to be worth some $600 billion. Deloitte recently begun to offer legal services through a new foreign law practice, all in the name of providing an even more holistic service to its clients. Deloitte is following in the footsteps of rival Big Four firms EY and PwC, who also recently expanded their legal services offerings.

Traditional legal services firms are understandably wary of the development. The Big Four will be “very, very serious players” in the market, says Nick Davis, the managing partner of City law firm Memery Crystal. “[They] will have a very large impact on the mid market. They have got such a strong client base and they are so good at integrating business services into their offering,” he said.

As always, acquisitions will play a key role in the Big Four’s new growth strategy. This week, EY announced that it had acquired tech-centric alternative legal provider Riverside Law – a move that is widely seen as a shot across the bow of the traditional legal market. EY’s global legal leader Cornelius Grossmann confirmed as much, saying the firm has a plan “to aggressively grow the legal business” over the next five years.

EY’s UK law leader for financial services Matthew Kellett put it in even blunter terms: “So, we’ve acquired Riverview — you weren’t expecting that — watch this space — lines are being drawn.”

The Big Four’s recent expansion into legal services was made possible by a regulatory change in the UK that allowed non-lawyers to own law firms, which the Big Four no doubt had lobbied for. Once the law was changed, the Big Four seized upon the opportunity with characteristic efficiency. According to a report from ALM Intelligence, PwC already has 2,500 lawyers in 85 countries, which would place it as the sixth-largest legal services provider in the world in terms of headcount. KPMG and EY have 2,200 and 2,100 lawyers respectively, while Deloitte, which joined the party late, has 1,800.

The Big Four’s vast economies of scale and ability to harvest and invest huge amounts of money have been instrumental in their whirlwind takeover of the legal services sector. In 2017 PwC had a global revenue of $37 billion while Deloitte posted nearly $39 billion. By contrast, only two law firms — Latham & Watkins and Kirkland & Ellis — have broken the $3 billion mark.

The big irony is that this is all happening as governments around the world are finally beginning to express reservations about the huge amount of power the “Big Four” accountancy firms have managed to amass in recent years, often with the same governments’ approval, if not direct assistance.

The influence of the four firms is now virtually unparalleled across the industries in which they operate. Their alumni control the international and national standard-setters of the accounting industry, ensuring that the rules of the game suit the major accountancy firms and their clients. Their reach also extends deep into the heart of government.

The Big Four’s combined global annual revenues reached $134 billion in 2017. And their number of employees, at 890,000 combined, has been expanding — including via acquisitions of smaller competitors — at over twice the rate of the economies they serve.

Even in the all-important audit industry, whose big attraction is that it opens doors to the more lucrative contracts for Big Four’s consulting and tax services — and now legal services — the rate of growth is impressive. Recent findings from the UK regulator, the Financial Reporting Council (FRC), show that the total audit fees across the Big Four accounting firms rose by 5.7% during 2016/17, compared to 2.7% in 2015/16.

As long as this oligopoly continues to dominate the global audit industry with such impunity, audit fees are likely to continue to rise, even as the quality of the audits themselves deteriorates. The Big Four currently audit 99 of the FTSE 100 companies, 497 of the 500 S&P companies, and over 90% of the companies listed on the benchmark exchanges of the vast majority of EU Member States.

But the backlash has begun. In the UK lawmakers are considering breaking the audit arms of the Big Four accounting firms into separate pieces to create a more competitive environment and reduce the potential for conflicts of interest to arise in the sector. Meanwhile, in Brussels the Big Four’s conflicted role as the world’s largest facilitator of corporate tax avoidance while helping national governments and the European Commission draft corporate tax policy is finally getting some attention.

Today those four firms have their sights set on a new prize, which could offer them even greater power. There are no guarantees they will win it. The Big Four’s last attempt to take over the legal services sector was nixed by the Enron scandal, which turned the Big Five into the Big Four and spurred a regulatory crackdown on some of their activities. But if the Big Four do win it this time around, they will become even more unassailable, with businesses, their shareholders and stakeholders worldwide paying the price. By Don Quijones.

Political and economic uncertainty, Brexit, and the very measures designed to tamp down on London’s housing bubble get blamed. Read…  UK “Housing Downturn” Pushes Biggest Real-Estate Agency with 10,000 Employees to Brink, Shares Collapse

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  19 comments for ““Big Four” Audit Oligopoly Expands Global Reach Further

  1. Old dog says:

    Thanks for this excellent piece.

    I only know the basics of business accounting and can’t comprehend what it would be like to audit Ernst & Young, KPMG, Deloitte or PricewaterhouseCoopers. However, it seems to me that something is rotten in Denmark. If they are too complex to be audited and too opaque to be accountable, shouldn’t they be broken up?

    I can think of many benefits for large companies to have an outsized auditing firm signing off on their books. But I can’t think of any benefit for society at large.


      I was raised by a Chartered Accountant and I, for one, can assure you that the BIG Four Auditing firms would unleash the Deep State & entire US Army on anyone that even attempted to audit them. The BIG Four are Too-BIG-to-FAIL Oligopolists that will call on all of the MIC to thwart any sort of breaking up of these entities no matter if they lie through their teeth every business quarter.

      The BIG Four are financial untouchables in the Oligopoly just as the Federal [read feral] Reserve is too.

      Financialization will only be aborted when the entire system crashes outright and mayhem ensues. The BIG Four will wait for the entire system to crash and then they will go dark like everything else.


  2. Anthony Hall says:

    The Big 4 Bean Twisters were in the 2008, $21 Trillion Wall Street Robbery, with the Ratings Agencies.

    • Jphn Gerty says:

      Never understood how the accounting and ratings agencies never suffered any repercussions with the way they were complicit in the creation of so many fraudulent securities.

    • cd says:

      yep, the largest heist of wealth in the history of mankind…then rub it in the folks they foreclosed on by running housing prices up to mars……
      for pe, hedge and reit instruments of wanton leverage to reap the pottervilles rewards…

  3. Petunia says:

    The concept of controlling every piece of the advisory business has spread to the online real estate industry as well. The more popular websites are now not only advertising homes, they are buying, financing, and providing the agents to assist in making sure they control the transaction, from start to finish. I’m sure the homeowners will get as good a deal out of it as other investors do.

  4. nick kelly says:

    What is the necessity of huge size in accounting?

    Or: where are the economies of scale that require size as in mining, or in mass production of a car or an i-phone?

    In manufacturing the design (phone) or tooling (car) should be spread over as many units as possible,to reduce the cost per unit.

    But how does doing the accounting for firm A, lower the cost of also doing it for firm B?

    If they are in the same field in the same country, there will be some synergies re: what they can deduct etc. So you will need an oil guy to tell you about the regime you are in, but couldn’t a medium size firm specialize in oil accounting and compete with the big four?

    Isn’t it a service business catering to a variety of needs? So how does
    massive size enable the cost of sales to drop and force the medium size firm out?

    • Suzie Alcatrez says:

      The Big 4 are not cheaper, they are more expensive.

      The way it works is that Big 4 hire thousands of college graduates every year. Most only work 2-4 years ( due to the insane hours ) before finding jobs at Fortune 500 companies.

      Partners keep in touch with the former employees along the years as they climb the corporate ranks. Eventually, they reach senior or even C level jobs. When it comes time to hire an accounting firm or now, legal firm, they have 20+ year relationships with Big 4 Partners.

    • Javert Chip says:

      The only real “customer” for audits is the shareholders, 90%+ of whom either don’t care or have no clue how to read financials or an audit report. Auditing (which USA & other nations require for public companies) will never change as long as corporations hire & pay their own auditors.

      In the 1930s, regulators (think SEC) were created to reduce previous egregious stock fraud.

      However, corporations are now so international & powerful that the old regulatory model is obviously breaking down. Legislation/regulation needs to be updated such that shareholders directly hire (perhaps still thru independent members of the board) and pay auditors. Until this happens, few (if any) auditors will go toe-to-toe with corporate executives about the appropriateness of financial statements.

      “Shareholders directly paying auditors” is not a trivial issue; an “AUDIT” is not a one-size-fits-all activity:

      1) Auditors will try to do the most comprehensive (ie costly) audit possible; some party (Board of directors) needs to negotiate this to an acceptable level
      2) Direct payment by shareholders means NOT PAYING AUDITORS WITH CORPORATE FUNDS; (concept: Board of directors issues enough new stock to pay for audit, somewhat diluting existing shareholders).
      2) Companies of the same size can require audits of vastly differing complexity (ie cost)
      3) Companies in different industries have different levels of complexity
      4) Companies under financial stress have different audit requirements
      5) Companies operating in certain countries or political environments have different audit requirements

      Full disclosure: I used to work for Coopers & Lybrand, and am a retired CFO. I’m a pretty full-blooded capitalist, but meaningful regulation & audits are required to maintain trust in the process.

      • John Taylor says:

        Interesting idea – The shareholders are the ones who are ultimately defrauded in these scandals.

        I’d imagine this is very difficult in practice though because the companies and investment firms organizing a sale are typically the big entities selling to a large number of diverse and often unsophisticated investors.

        The extreme prevelance of passive ETF’s over actively managed funds is clear sign of how unsophisticated most investors really are. After all the passive ETF approach throws aside any attempt at due diligence, claiming diversification itself provides enough safety to bypass this need. I fear the ultimate result of abandoning due diligence in masse will be the largest misallocation of capital ever seen.

    • Kenny Logoffs says:

      I’d like to understand how these big four win so much work too, when I assume the medium sized businesses are no more expensive or any less capable.

      But given the big four are known for creative accounting perhaps they’re very good on price?

      As someone else said earlier, if a business becomes too big to understand or audit, it should be broken up.
      There seems to be no merit in bigger ones except for their own purposes of obfuscating their activities that aren’t in societies interests.

      • Javert Chip says:

        Full disclosure: I worked for Coopers & Lybrand before retiring as a CFO.

        Indeed there is economy of scale for the 1-2 thousand largest international companies being audited by a single company. Imagine the total chaos of a large company being audited by 50 local firms in individual countries, each with limited international expertise. Who would consolidate all 50 of those audit reports? None of those auditors stand a chance of seeing the “big picture” (note: you can also make a case that the “big 4” don’t see the big picture).

        So there is a business case for the largest companies being audited by large international firms. However, for smaller companies, being audited by a large, well known firm is simply a fashion statement. Who (other than Bernie Madoff) wants to admit to their golfing buddies that they’re audited by some po-dunk CPA firm?

        Corporations (capitalist or socialist) do not exist for “society’s best interest”, they exist for shareholder’s best interest. I think (hope) what you meant to say was corporations within a nation (or regulatory/political environment) should certainly obey the laws and ethical norms of that environment.

    • Ambrose Bierce says:

      How much do these big firms outsource? Isn’t that the goal of these mega businesses, to own nothing, and control everything?

  5. intosh says:

    A business where conflict of interest is not only legal but part of the business model itself.

  6. L lavery says:

    Who pays the piper calls the tune. So long as firms pay for audits auditors will compete to please firms. Isn’t that how free markets work?

    • Javert Chip says:


      However, that’s why regulatory bodies exist. No one seriously claims any “-ism” should operate without appropriate regulation.

      Without appropriate regulations, the monopoly-encumbered USA of 1890-1930 would be a lot smaller and poorer than the USA of 20018.

      Is it perfect – no; is it better than in the past – absolutely; can it be better in the future – absolutely.

  7. Auditor says:

    I work as an auditor in the Netherlands, where we had some scandels as well the last several years.

    The government came up with a rule that if you are the auditor of a Public Interest Entity, no advisory services (including tax, legal, etc) are allowed to be performed.

    I think this is a big step in the right direction, as audit should be the focus and not a foot in the door to sell your advisory services. Should be implemented word wide.

  8. Ambrose Bierce says:

    sounds like they want to get out of the auditing business altogether.

    • John Taylor says:

      Actually I’d imagine the synergies make perfect sense if their business model in auditing is expected to require a lot of legal representation in the future.

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