Big Four auditors

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The Big 4, sometimes written as the Big Four, is a group of international accountancy and professional services firms that handles the vast majority of audits for publicly traded companies as well as many private companies.

This group of large public accountancy firms, once known as the "Big Eight" before a series of mergers, also included Arthur Andersen. Arthur Andersen was convicted of obstruction of justice in the wake of the 2001 Enron scandal. This conviction effectively ended the firm's ability to audit public companies. On May 31, 2005, the United States Supreme Court unanimously overturned the conviction. However, Arthur Andersen ceased to exist as an entity and sold all of its international practice to other Big 4 firms.

Contents 1 Policy Issues Concerning Industry Concentration 2 The Big gets Bigger 2.1 Big 8 (1970s-1989) 2.2 Big 6 (1989-1998) 2.3 Big 5 (1998-2002) 2.4 Big 4 (2002-) 2.5 Mergers and Developments 3 Other Countries 3.1 Turkey 3.2 Israel 3.3 Japan 3.4 Pakistan 4 External links

Policy Issues Concerning Industry Concentration

Lawrence A. Cunningham, Too Big to Fail: Moral Hazard in Auditing and the Need to Restructure the Industry Before It Fails, Columbia University Law Review

The Big gets Bigger

Since 1989, mergers have reduced the number of major accountancy firms from eight to four.

Big 8 (1970s-1989)

The firms were called the Big 8 in the 1970s and 1980s, reflecting the international dominance of the eight largest accounting firms:

1. Arthur Andersen
2. Arthur Young & Company
3. Coopers & Lybrand
4. Ernst & Whinney (formerly Ernst & Ernst)
5. Haskins & Sells (merged with the European firm Deloitte Plender Griffiths to become Deloitte, Haskins and Sells)
6. KPMG (formed by merger of Peat Marwick International and KMG Group)
7. Price Waterhouse
8. Touche Ross

The Big 8 themselves were the results of earlier mergers.

Big 6 (1989-1998)

Competition among these public accounting firms intensified and the Big 8 became the Big 6 in 1989 when Ernst & Whinney merged with Arthur Young to form Ernst & Young in June, and Deloitte, Haskins & Sells merged with Touche Ross to form Deloitte & Touche in August.

Confusingly, in the United Kingdom the local firm of Deloitte, Haskins & Sells merged instead with Coopers & Lybrand. For some years after the merger, the merged firm was called Coopers & Lybrand Deloitte and the local firm of Touche Ross kept its original name. In the mid 1990s however, both UK firms changed their names to match those of their respective international organisations.

Big 5 (1998-2002)

The Big 6 became the Big 5 in July 1998 when Price Waterhouse merged with Coopers & Lybrand to form PricewaterhouseCoopers.

Big 4 (2002-)

The second firm of the Big Five, Arthur Andersen, was indicted for obstruction of justice for shredding documents related to the audit of Enron, covering up millions of dollars in losses in the 2001 Enron scandal. The resulting conviction, since overturned, has effectively meant the end of the line for Arthur Andersen. Most of its country practices around the world have sold to members of what is now the Big Four, notably Ernst & Young and Deloitte & Touche in the UK.

The departure of Arthur Andersen leaves only four large international accounting firms in the world (the fifth-largest is Grant Thornton International). This causes significant problems for large international corporations, because they are required to use separate accounting firms for their audit work and most non-audit services. Therefore, the loss of the fifth big accounting firm has considerably reduced the competition among the accounting firms and has increased accounting costs for many clients.

Mergers and Developments

• Arthur Andersen
  • Developed from Andersen, Delany
• Ernst & Young
  • Arthur Young
  • Ernst & Whinney
    • Ernst & Ernst
• PricewaterhouseCoopers
  • Coopers & Lybrand
  • Price Waterhouse
• Deloitte Touche Tohmatsu
  • Deloitte & Touche
    • Deloitte Haskins & Sells
      • Deloitte Plender Griffiths (UK)
      • Haskins & Sells
    • Touche Ross
      • Touche, Ross, Bailey & Smart
        • Ross, Touche
        • George A. Touche
        • Touche, Niven, Bailey & Smart
          • Touche Niven
          • Bailey
          • A. R. Smart
      • Tohmatsu & Co.
• KPMG Peat Marwick
  • Peat Marwick
    • William Barclay Peat
    • Marwick Mitchell
  • KMG
    • Klynveld Main Goerdeler
      • Klynveld Kraayenhof
      • McLintock Main Lafrentz
    • Deutsche Treuhand Gesellschaft

Other Countries

Turkey

In Turkey, the "Big Four auditors" are local affiliates of the Big Four international firms;

1. Güney Bagimsiz Denetim ve S.M.M. A.S. - member of Ernst & Young,
2. Akis Bagimsiz Denetim ve S.M.M. A.S. - affiliate of KPMG,
3. Basaran Nas Bagimsiz Denetim ve S.M.M. A.S. - affiliate of PwC
4. DRT Bagimsiz Denetim ve S.M.M. A.S. - affiliate of Deloitte

In addition to the big four, there are other other affiliate companies which have weaker affiliate relations compared to affiliates of big four.

Israel

In Israel, there are five large auditors, four of whom are affiliates of the "Big Four Auditors":

1. Kost, Forer, Gabbay & Kasierer (Ernst & Young Israel)
2. KPMG Somekh Chaikin
3. Deloitte Brightman Almagor
4. Kesselman & Kesselman, PwC Israel
5. BDO Ziv Haft (affiliate of Binder, Dijker, Otte & Co)

Japan

In Japan, the “Big Four auditors” are local affiliates of the Big Four international firms:

• AZSA & Co. (あずさ監査法人) - affiliate of KPMG
• MISUZU Audit Corporation (みすず監査法人), formerly Chūō-Aoyama (中央青山監査法人) - affiliate of PwC (see below)
• ShinNihon (新日本監査法人) - affiliate of Ernst & Young
• Tohmatsu (監査法人トーマツ) - affiliate of Deloitte Touche

Following the discovery of the accounting fraud at Kanebo, the Financial Services Agency in Japan suspended Chūō-Aoyama from conducting audit work for inadequate internal controls, for two months from July 1, 2006 onwards. On June 13, 2006, PwC announced the incorporation of a new accounting firm in Japan, called PricewaterhouseCoopers Arata. Unlike Chūō-Aoyama, which is a network firm of PwC, PricewaterhouseCoopers Arata is a member firm of the PwC global network and will adopt its internal controls and methodologies.[1]

Pakistan

In Pakistan, the "Big Four auditors" are local affiliates of the Big Four international firms:

• Ford Rhodes Sidat Hyder - affiliate of Ernst & Young
• AF Ferguson - affiliate of PwC
• Yousuf Adil Saleem - affiliate of Deloitte Touche
• Taseer Hadi Khalid - affiliate of KPMG

External links

• http://www.big5friends.com/, an ad-supported website for current and former employees of Big 5 firms
• http://www.big4.com/, an ad-supported website for former employees of Big 4 firms
• http://raw.rutgers.edu/raw/internet/big5.htm, A table of links to Big 5 accounting firms, from a Rutgers University website

 

Big Four auditors
Deloitte Touche Tohmatsu | Ernst & Young | KPMG | PricewaterhouseCoopers

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