Big 4 Accounting Firms
What are the big 4 accounting firms?
The Big 4 Accounting Firms are:
They are the top 4 accounting firms in the world. They are well known for being the top audit firms in the world.
The big four accounting firms are the largest professional service firms in the world. The reason they have this designation is because of the number of employees they have to offer professional services to clients.
The professional services they offer are audit services, tax services and advisory services. For each firm, audit services provides their largest source of revenue.
Why are the 4 big public accounting firms so important?
The reason everyone knows who PwC, Deloitte, EY and KPMG are is because they have a monopoly on the audit of public companies. A public company is a company that is listed on one of the major stock exchanges around the globe. In order to be listed on those exchanges, companies need to have audited financial statements. Most investors prefer to have the big four audit those financial statements because of the prestige.
The big four audit firms offer something that mid tier accounting firms are not able to offer. They offer a large network of member firms around the world. What this means is that they have partnerships with firms across the world that are able to service their clients. The largest companies in the world operate in over a 100 countries, so they expect their advisors to have offices there as well. The big 4 are able to easily offer this to their clients. They all have over 150,o00 employees while the mid-tier accounting firms all have less than 100,000 employees. Visit our top 10 accounting firms pages to learn who the largest mid-tier accounting firms are in the world.
Another reason they want the big audit firms to audit them is because they have enough capital in case something goes wrong. They want to be able to have some recourse if the financial statements aren’t audited correctly. Since the top accounting firms make billions of dollars each year, they have enough capital in case a shareholder wants to sue them.
For example, when Enron went under, many people sued Arthur Andersen. Arthur Andersen was not able to survive that lawsuit because their level of involvement in the fraud was seen as too great.
PwC formerly known as Pricewaterhousecoopers is one of the largest of the 4 big public accounting firms. They made $35.9 billion in revenue for the fiscal year ended 2016.
The number of employees working at PwC was 223,000 as of their latest fiscal year.
PwC has over 400 clients out of the 500 companies that are in the Fortune 500.
EY (Ernst & Young)
What is Ernst & Young. Ernst & Young PVT LTD is a professional services firm composed of thousands of public accountants that focus primarily on auditing. The number of employees working at Ernst and Young is well over 200,000.
EY was formed in 1989 when Ernst and Whinney and Arthur Young & Co. merged.
E&Y is headquartered in the United Kingdom. Their headquarters are located at 6 More London Place, London SE1.
Deloitte is another one of the largest public accounting firms in the world. They were formed from the merger of Deloitte Haskins & Sells and Touche Ross in 1989.
They are the largest professional services firm as it relates to revenue for the fiscal year ended 2016. They earned $36.8 billion in 2016. In 2015, Deloitte’s Revenue was $35.2 billion.
KPMG was founded in 1987 when Peat Marwick Mitchell and Co and Klynveld Main Goerdler merged to form one firm.
What is the full form of KPMG? KPMG stands for Klynveld Peat Marwick and Goerdler.
KPMG earned $25.42 billion in 2016. This makes them the fourth largest public accounting firm in the world. The number of employees working at KPMG is 188,982 employees for the fiscal year ended 2016.
In order to learn about the big 4 accounting firms you will have to learn about their history. Before they became the big 4 accounting firms, they were the Big 5 Accounting firms. Before they were the big 5 accounting firms, they were the big eight accounting firms.
Big 5 Accounting Firms
The 5 big accounting firms predated the big four accounting firms. They were the largest accounting firms until 2002. The big 5 accounting firms were Ernst & Young, Deloitte & Touche, Arthur Andersen, KPMG and Pricewaterhouse coopers.
They ceased being the big five when Arthur Andersen imploded due to fraud related to Enron.
Enron Scandal and Arthur Andersen
One of the central scandals of the accounting industry was the Enron Scandal. In 2001, it was found out that Enron has reported billions of dollars in revenue utilizing accounting fraud. Eventually Enron went bankrupt. The pain didn’t stop there though. Enron didn’t only destroy one of the nation’s largest corporations, it also destroyed one of the world’s largest accounting firms.
From the Enron scandal came the collapse of the accounting firm Arthur Andersen. Arthur Andersen was one of the big 5 accounting firms. Once Arthur Andersen collapsed, there were only 4 accounting firms left to audit the majority of the public companies in the world.
Arthur Andersen was convicted of obstruction of justice on June 15, 2002. This was primarily related to their shredding of documents related to Enron.
Who were the players for Arthur Andersen?
David Duncan – Lead Audit Partner – David Duncan was the lead audit partner on the Enron account since 1997 and was a key witness in the trial against Arthur Andersen. He oversaw the shredding of documents related to Enron.
Nancy Temple – General Counsel for Arthur Andersen
The conviction of Arthur Andersen was later reversed by the Supreme Court based on a technicality. The Supreme Court said that Arthur Andersen should not have been convicted because it was hard to prove that Arthur Andersen was consciously committing the wrongdoing.
One of the primary reasons for Arthur Andersen’s conviction was a memo from Nancy Temple.
Do you have to work at the big 4 to have a successful career in accounting?
Now that we know who the big 4 accounting firms are lets discuss whether you have to work there to be successful. Most people want to know about the big 4 accounting firms because they hear about them when they investigate a career in accounting. They are all over the internet and colleges trying to recruit employees. You do not have to work at the big 4 to be successful in accounting, but your career will be a lot easier if you do. Many employers have great respect for anyone that has a big four audit firm on their resume. This is because people know what it takes to be a big 4 accountant.
Being a big 4 accountant means dealing with long hours and tough personalities. It means dealing with tough clients. You have to be willing to do anything at a big four company. You have to travel a lot and sometimes you don’t know when you will be traveling. The work is not easy and requires a lot of thought. The more years you spend in the big 4; the more respect people have for you.
In conclusion, you do not have to work in public accounting to be successful as an accountant, but it will make your career success much easier.
Big 8 Accounting Firms
The 8 big accounting firms predated the big five accounting firms. The phrase was used to the largest public accounting firms in the world until 1989. They were no longer referred to the big 8 after a series of mergers. The big eight were:
- Arthur Andersen
- Arthur Young
- Deloitte Haskins and Sells
- Ernst & Whinney
- Peat Marwick Mitchell
- Price Waterhouse
- Touche Ross
- Coopers & Lybrand
Top 10 Accounting Firms
The big 4 accounting firms are obviously the largest accounting firms in the world, but who are the other largest accounting firms in the world? The big 4 obviously take up the 4 top spots of the largest accounting firms in the world. The ranking of the top 10 accounting firms is below:
- Grant Thornton
- Crowe Horwath
- Baker Tilly
- Nexia International
The rankings are based on the revenues of all the accounting firms. The 4 biggest accounting firms earn way more revenue than all the other top ten firms.
Big 4 Partner Salary
What can you expect to earn as a partner working at one of the four public accounting firms.
CPA – Certified Public Accountant
In order to be a big four accounting firm partner, you need to obtain your CPA license. If you are unable to obtain your CPA license, then the highest status you can ever reach at the big four is principal. In order to be a principal, you still need a credential. The typical credential to be a principal at the big 4 is a law degree.
Why do the four big accounting firms require the CPA? They require their employees to be certified public accountants because the accounting firms have faced lots of scandals over the years. They believe it will help them prevent scandals by having all candidates obtain a CPA license. Does it work? Of course not.
Public accountants are important to the economy of the country and the world. In theory, they provide security the world’s publicly traded institutions by signing off on their financial statements. Without a designation to standardize the expectations from a public accountant, then investors wouldn’t have faith in public financial statements.
Big Four Structure (Partnership vs. Corporation)
The big 4 accounting firms are structured as partnerships. This means that all the partners own the firm. Most of the firms are LLPs. LLP stands for Limited Liability Partnership.
This structure governs the way that the big 4 are run. Many people believe that the big 4 are run like corporations, but they are not. They are run like several businesses that all operate independently.
For example, EY New York is run independently from EY Hong Kong. Their approaches to acquiring business and executing work should be the same but they aren’t because each partnership operates on its own.
Big 4 Accounting Firm Salary
Many people want to know what the salaries are like at the big 4. It is pretty obvious what the salaries are like at the big 4 just by understanding the structure. Salaries at the big 4 are very low for people starting out while the salaries earned by big 4 partners are extremely high. Even though partners don’t really earn what most people would call a salary.
Most associates in the big 4 start out at around $50,000 to $60,000 in the United States. This can obviously go higher depending on the amount of credential that you enter the firm with. If you have a law degree or an LLM, you will obviously earn more than 60,000, but the average starting salary at the big 4 is probably between $50,000 to $60,000.
Based on my experience and knowledge of the big4, it is also not typical to see anyone make over 100,000 until they reach manager. People can earn $100,000 before manager, but those people are usually highly rated and they work in a big city like New York. Don’t go work for the big 4 and think that you are going to be rich in a year or two. You can make a lot of money at the big 4, but you need to be patient first.
Additionally, the most that people typically can earn without making partner is in the $200,000 range. You can earn up to $300,000 if you are a high ranking managing director. However, most people below managing director are capped out at around the $200,000 range.
In conclusion, you can expect to start out at around $50,000 at the big 4 and end up around $200,000 unless you make partner.
Regulation of the Big 4 Firms
The big 4 accounting firms are highly regulated companies. This is in large part due to their history of scandals and fraud. Accountants are often caught up in fraud or are negligent when performing an audit.
The big 4 accountants main regulators are the SEC, PCAOB and the IRS to some extent.
SEC – The SEC is the securities and exchange commission. They are responsible for regulating the distribution and selling of securities of public companies. This means that they regulate all public companies in the United States. Part of companies being public is that they have to issue financial statements that are audited. This is how the regulation of the big 4 comes into play. Since the big 4 audit most of the country’s public companies, they end up running into the SEC a lot. If you are ever on an audit of a public company, you most likely have an SEC concurring partner who reviews the financial statements for comments that might come up from the SEC.