The Big Four are the four largest accounting firms in the United States, as measured by revenue. They are Deloitte, Ernst&Young, PwC, and KPMG. Aside from auditing services, the Big Four offer tax, management consulting, valuation, market research, assurance, and legal advisory services. They are a leading source of tax law interpretation and experts on changes in accounting and auditing standards.
Breaking Down Big Four
Through industry consolidation that began in 1989, what used to be the Big Eight has become the Big Four today. The eight, in alphabetical order, were Arthur Andersen, Arthur Young, Coopers & Lybrand, Deloitte Haskin & Sells, Ernst & Whinney, Peat Marwick Mitchell, Price Waterhouse, and Touche Ross — all U.S. or U.K. entities. Arthur Young combined with Ernst & Whinney and Deloitte Haskin & Sells merged with Touche Ross to reduce the group count to six. Price Waterhouse and Coopers & Lybrand then merged their practices making it five. Following the collapse of Arthur Andersen, where some individuals foolishly thought shredding Enron documents was a good idea, the five became the present-day four.
These firms perform most of the auditing work for the largest public companies. As of the end of 2017, the Big Four employed almost 1 million people in the aggregate, or an average of 250,000 employees per firm. According to their published reports, the average annual revenue was approximately $31 billion. With 360-degree views of companies and industries, the Big Four are authorities in the business. They have extensive recruiting and training programs for fresh graduates and sought-after passageways for tax and consulting professionals to and from many industrial sectors.
Critics of the Big Four
However, the Big Four is not without its critics. Despite all its resources and inside access to companies, these giants have not been the ones to uncover massive frauds that have caused the sharp pain to shareholders of companies and investors in funds. Enron and Worldcom were exposed by forensic accounting experts, not any of the Big Four. Critics say that the accounting firms do not want to ask too many tough questions of their paying clients or too assiduously investigate something suspicious in their books. That would be tantamount to biting the hand that feeds you.