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 that’s exactly what we’re 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 let’s 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 KPMG…and professional services is a broad term for almost any specialist service provided between two businesses.
Ok so there’s 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.
- Arthur Andersen
- Coopers and Lybrand
- Ernst & Whinney
- Deloitte Haskins & Sells
- Peat Marwick Mitchell
- Price Waterhouse
- Touche Ross
- Arthur Young
Prior to the Big Eight–during the 19th century–there 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 wasn’t 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 Andersen’s 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:
Before we dive into each of the Big 4 accounting firms in more detail, let’s 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 it’s 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, let’s 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
- Global Business Tax Services
- Global Employer Services
- Indirect Tax
- Mergers & Acquisitions Services
- Mergers & Acquisitions Analytics
- Mergers & Acquisitions Institute
So accounting really does only form a small (but still significant) part of what they do.
Let’s 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, let’s 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. It’s 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.”
“It’s autocratic, you’re constantly being referred to as a “resource”, there’s backbiting and some unexplainably stupid promotion decisions.”
Now I wonder which offices they work in!
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!
PwC’s 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 PwC’s 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 you’re 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 world’s biggest companies. They have less of a focus on consulting and entrepreneurial businesses.
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
Deloitte’s 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.
Deloitte’s 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 it’s 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
While the two firms continuously vie for the top spot in the Big 4, Deloitte is the opposite of PwC in terms of culture.
Deloitte’s audit practice is 40% smaller than PwC’s, 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 Deloitte’s 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 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 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 PwC…Deloitte 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 partner’s opinion.
Do you think the partner will raise the issue which could personally cost her money? It’s 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. That’s 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.
Here’s 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.
There’s some interesting changes coming soon. Even firms as large as the Big 4 aren’t 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 here’s what you need to do.
- Attend a great school (major isn’t so relevant, see the vast array of services offered above). The school should preferably be a Big 4 target school.
- Network hard with Big 4 staff throughout your degree (especially if you do not attend a target school)
- Get onto Summer Leadership Programs or Internships with the Big 4 (or failing that, intern at a well known company)
- Interact with the relevant societies on campus, become part of the executive
What if you’re already working? Well for you the pathway is somewhat easier:
The Big 4 are people driven organizations. Networking is imperative.