The
Big Four accounting firms
Shape
shifters
With
the audit market maturing, accounting firms become consultancies
Sep
29th 2012
IT IS hardly
news that the “Big Four” accounting firms get bigger nearly every year. But
where they are growing says a lot about how they will look like in a decade, and
the prospects worry some regulators
and lawmakers. On September 19th Deloitte Touche Tohmatsu was the first to
report revenues for its
2012 fiscal year, crowing of 8.6% growth, to $31.3 billion. Ernst & Young,
PwC and KPMG will soon report their revenues (as private firms the Big Four choose not to report profits).
For all four, Asia is a bright region. Deloitte’s revenue in Asia
grew by 16.3% in dollar terms, faster than anywhere else. This was despite long-running
worries about dodgy audits of Chinese companies by Western firms.
American and Chinese regulators have
been rowing over whether America’s accounting watchdog may inspect
Deloitte Shanghai’s work. The two sides recently announced that American regulators
could visit and observe, but not perform their own inspections.
Yet more important, at all four firms consulting has been growing
much faster than the audit business in recent years. In fiscal 2012 Deloitte
increased its revenues from consulting
by 13.5% and from financial
advisory by 15%--compared with just 6.1% for audit and 3.9% for tax and
legal services (see chart). Barry Salzberg, Deloitte’s boss, says he expects consulting to continue to
grow by double digits, whereas the audit market is mature. Deloitte is adding consulting staff at twice the
rate as employees for audits (at the end of May the firm had 193,000 people on
its payroll).
If the two businesses continue to grow at the 2012 rate,
the firm would do more consulting than auditing by 2017. Some lawmakers already fret that consulting
and tax advisory (when the Big Four are explicitly helping companies make money) can be in conflict with auditing
(where the firms should take a wary, outside view of the books, in the service
of investors not management). Lynn Turner, a former chief accountant at
America’s Securities and Exchange Commission, calls the audit firms a “public
utility公用事業”, but worries that they do not see themselves that way.
In 2002 the Sarbanes-Oxley act limited what kind of non-audit services an
American accounting firm can offer to an audit client. But contrary to what many people
believe, it did
not forbid all of them. In its last full proxy statement (委託投票說明書) before being bought by JPMorgan, Bear
Stearns reported paying Deloitte in 2006 not only $20.8m for audit, but $6.3m
for other services. The perception
that auditors and clients are hand-in-glove (掛勾), fair or not, is a reason why
shareholders of Bear Stearns sued Deloitte along with the defunct bank.
(JPMorgan and Deloitte settled
in June. Deloitte paid out $20m, denying any wrongdoing.)
hand in glove
= closely connected with someone,
especially in an illegal activity
The European Commission in Brussels recently proposed taking
a meat-axe to the problem. A draft directive provides for the creation of audit-only firms in the
European Union. But the legal-affairs committee
of the European Parliament does not like the idea.
With the EU’s legislative machinery slow and complex, it is impossible to
predict the final outcome.
Asked what would happen if people perceived
Deloitte as a consulting
firm with an audit business rather than the other way round, Mr Salzberg
replies: “we’re not going to take
our eye off our professional responsibility with respect to either.” The future
of the Big Four’s business
model may depend on whether lawmakers in Europe and America are
convinced that this is possible.
This article appeared in the Finance and
economics section of the print edition
會計師 變身企業的賺錢顧問？
