For many years, the accounting industry has been top-heavy, dominated by a small number of large and powerful firms. Over time, the largest accounting firms in the world underwent a series of mega-mergers, concentrating the industry even more.
In 1989, there were eight mega-accounting firms, all based in the United States or United Kingdom and known as the ‘Big Eight’. They included:
- Arthur Andersen
- Arthur Young
- Coopers & Lybrand
- Deloitte, Haskins & Sells
- Ernst & Whinney
- Peat Marwick Mitchell
- Price Waterhouse
- Touche Ross
Arthur Andersen collapsed due to its role in the Enron scandal. The others? Mergers cut the Big Eight down to the Big Four:
- Arthur Young and Ernst & Whinney combined to form Ernst & Young.
- Deloitte, Haskins & Sells merged with Touche Ross and became known simply as Deloitte.
- Price Waterhouse and Coopers & Lybrand combined and are now known as PricewaterhouseCoopers (PwC).
- Netherlands-based KMG merged with Peat Marwick Mitchell to form KPMG International.
Because there is a massive gap in size between the four and any other competitors, they are collectively referred to as the ‘Big Four’.
The Big Four accounting firms
According to the International Accounting Bulletin, the Big Four have a combined 74% share of the global accounting market.1 Here’s some general information about each one.
Deloitte
Founded in 1845 in London, Deloitte has operated in the US since 1890 and has grown both organically and through a series of acquisitions over the years. Deloitte was named by Forbes magazine as the third-largest privately owned company in the US in 2020 and generated $59.3 billion in revenue in 2022. The company employs about 415,000 people and provides a range of services such as consulting, financial advising, risk advising, tax, and legal services.
Ernst & Young
Ernst & Young traces its roots back to 1849 through predecessor companies, but the company’s current form originated in 1989 when Ernst & Whinney merged with Arthur Young & Co. Like Deloitte, Ernst & Young is based in London but has operations globally. The company is slightly smaller than Deloitte, but is still a massive operation. Ernst & Young is the seventh-largest private company in the US. It has about 365,000 employees and generated $45.4 billion in revenue in 2022.
KPMG International
KPMG is headquartered in Amsterdam but is incorporated in the UK. Its name stands for Klynveld Peat Marwick Goerdeler, the surnames of the founders of the predecessor companies, which date back to 1897 in one case. The current form of the company originated when KMG merged with Peat Marwick in 1987, which was considered to be the first “mega-merger” of large accounting firms. KPMG employs 265,000 people and produced almost $35 billion in revenue in 2022.
PricewaterhouseCoopers
PricewaterhouseCoopers (PwC) was formed by the 1998 merger of Price Waterhouse, which has been around since 1849, and Coopers & Lybrand, which was founded in 1854. The third London-based firm of the Big Four, PwC is the second-largest by revenue and the third-largest by employees, with $50.3 billion and 328,000, respectively.
It’s important to note that none of the big four is actually a single accounting firm. Technically speaking, they are each a network of many different independently operated firms.
What do the big four accounting firms do?
While the exact scope of services may vary slightly, the four firms essentially do the same things. They all offer services including:
- Audit – Ensuring that business books are kept accurate and up-to-date.
- Assurance
- Tax – Consulting services, tax compliance, and tax law interpretation.
- Management consulting
- Actuarial services
- M&A advisory services
- Market research
- Legal services
- Risk advisory
- Corporate finance
- Other forms of consulting
Why it matters to investors
The accounting firms are all private companies but regularly provide services to publicly traded companies. For example, the majority of public company audits are conducted by one of the Big Four accounting firms, and they are generally considered the authority when it comes to new accounting standards, tax law interpretation, and more.