What Is the Big 4?

The "Big Four" is the nickname used to refer to the four largest accounting firms in the United States, as measured by revenue. They are Deloitte, Ernst & Young (EY), PricewaterhouseCoopers (PwC), and Klynveld Peat Marwick Goerdeler (KPMG). Aside from auditing services, the Big Four offer tax and management consulting, valuation, market research, assurance, and legal advisory services. They are the leading source of tax law interpretation and experts on changes in accounting and auditing standards.

Key Takeaways

  • The "Big Four" refers to the four largest accounting firms in the United States.
  • These four firms audit the financial statements for the vast majority of companies in the S&P 500.
  • In addition to their auditing services, the Big Four also provides consulting, valuation, market research, assurance, and legal advisory services.

Understanding the Big 4

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 some of the largest public companies in the world. In fact, the vast majority of Fortune 500 companies have their financial statements audited by one of the Big Four. Their clients include such powerhouses as Berkshire Hathaway, Ford Motor Co., Apple, Exxon Mobil, and Amazon. According to a 2018 report by the CFA Institute, 30% of the S&P 500 were audited by PwC, 31% by EY, 20% by Deloitte, and 19% by KPMG.

As of December 2020, the Big Four employs almost 1 million people in the aggregate worldwide, or an average of 250,000 employees per firm. According to their published reports, Deloitte reported the highest global revenue with $47.2 billion, followed by PwC at $43 billion, Ernst & Young at $37.2 billion, and KPMG at $29.8 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 4

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 pain for 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.