Big 5 Accounting Firms
The big 5 accounting firms were the largest accounting firms in the world until 2002. They were formed from the big eight accounting firms. They were formed from many smaller member firms and would later go on to create the big 4 firms.
They ceased being the 8 biggest accounting firms in the world in 1989. In June of 1989 Arthur Young merged Ernst & Whinney. Deloitte Haskins Sells also merged in 1989. They merged with Touche Ross. That formed the big 6 accounting firms. The end of the big 6 accounting firms arrived in 1998 with the merger of Pricewaterhouse and Coopers & Lybrand.
Big 5 accounting firms were:
1. Ernst & Young
2. Deloitte & Touche
3. Arthur Andersen
5. Price Waterhouse Coopers
The top 5 accounting firms lasted until about 2002. In 2002 Arthur Andersen fell from grace and was no longer considered one of the big five accounting firms.
Arthur Andersen fell off the big 5 accounting firms ranking in 2002 after they were found guilty of obstructing justice in the Enron Scandal. The conviction was later overturned, but the damage was done.
It started in 1913 by Northwester University professor named Arthur Andersen.
Arthur Andersen was a global professional services firm just like the other big 5. They notoriously became to close to one of their clients, Enron, who falsely reported revenues. They infamously shredded a lot of documents related to the audit of Enron.
Arthur Andersen was also famous for the growth of their consulting business. The consulting firm eventually spun off and rebranded as Accenture.
After Enron, most of the big accounting firms spun off their consulting operations to appease regulators who said the consulting businesses interfered with independence.
Now all of the big 4 accounting firms have established and grown their consulting businesses to huge contributors to their revenue.
Their revenues before they went under approached $10 billion.
Ernst & Young History
Ernst and Young was formed by a merger in 1989 between Arthur Young and Ernst and Whinney.
PwC was formed in 1998 from a merger between Pricewaterhouse and Coopers & Lybrand.
KPMG was formed in 1987 from a merger between Peat Marwick International and Klynveld Main Goerdeler. Thus, the full form of KPMG is Klynveld Peat Marwick Goerdeler.
Deloitte was established in 1989 when Deloitte Haskins and Sells merged with Touche Ross to become Deloitte & Touche.
What makes the Big 5 the Big 5?
All of the other largest accounting firms in the world can largely be labeled as regional firms. They don’t have the desire to grow out of the respective market that they service. The reason for this is because they make sizable revenues from just servicing regional companies. What sets the big 4 apart is that they want to consistently service the largest companies in the world.
The largest companies in the world are not regional companies. The largest companies in the world are companies that operate in countries all over the world. Therefore they need services all over the world. They don’t only file financial statements in the US, they file financial statements in the middle east and China. A US firm can’t keep flying out their US people to other foreign countries. They can’t learn all the countries of the world. The largest companies in the world need to work with the largest accounting firms in the world as well.
That is why the big 4 have grown internationally. They know that their clients need local help in the countries where they operate. That is why the top 5 accounting firms were created and later became the big 4 accounting firms.