Deloitte retains its position as the world’s largest accounting firm for the first time
Global accounting firms experience an uplift in 2014 growth levels with all the Big Four (Deloitte, PwC, EY, KPMG) reporting a 6% revenue increase, up from 3% in 2013.
According to the latest survey of global accounting firms conducted by International Accounting Bulletin (IAB), the authority on accounting firm data and analysis, 52 top international accounting networks and associations earned a combined $181.7bn in fees in 2014, up 6% year-on-year.
Deloitte has for the first time maintained its leading position as the largest global accounting network by beating close rival PwC to the title by as little as $248m. Deloitte reported $34.2bn in fees in 2014. PwC is yet to see the impact of the acquisition of global consultancy Booz&Co. on its financials, which was finalised in the last few months of the network’s 2014 financial year, with 2015 promising to be another competitive year between the close rivals.
While the gap between the Big Two firms (Deloitte and PwC) has been getting smaller over the past decade, the gap between the leading two and third ranked EY has been increasing. According to IAB historic data the gap has increased from $1.9bn in 2004 to $6.5bn in 2014. EY reported fee income of $27.3bn and fourth ranked KPMG $24.8bn in 2014.
In addition, the gap between the four largest players and their nearest middle market competitor, BDO International, increased by $7bn in the past decade from $10.6bn in 2004 to $17.8bn in 2014.
The numbers indicate that the recent regulatory interventions in the market designed to create more competition are not reflected in the financial results published by the industry.
Advisory and strategic acquisitions the drivers of growth
While audits become increasingly commoditised the move towards advisory work by the big accounting giants has been a growing trend in the past few years. IAB historic data shows that since 2004 the Big Four combined have increased their advisory revenues by over $33bn while audit & accounting revenues increased by $14bn and tax work revenues by $10.2bn in the same time period.
M&A were one of the main drivers of growth for the largest firms with deals such as the previously mentioned PwC acquisition of Booz&Co., EY’s acquisition of The Parthenon Group as well as its merger with KPMG Denmark and KPMG’s many consultancy and analytics business acquisitions in US and Europe.
EU Audit Reform implementation
After three years of fierce debate, the EU audit market reform came into force on 16 June 2014 with the implementation date set for 17 June 2016. Member states are now left mull over 83 options presented to them in the regulation (32 options) and directive (51 options) document having to decide on measures such as the maximum length of audit firm tenders, restrictions on non-audit services etc. While a more competitive and independent audit market across the union was at the heart of the reform, early indications show member states are likely to opt for very different measures with Spain for example looking to implement 9 year mandatory audit firm rotation with no exception and the UK opting for the 10+10 rule. Such fragmentation in implementation raises questions about the benefits to global companies and the effect on already squeezed audit fees.
International Accounting Bulletin is the only global magazine covering the professional services industry. Focusing on business issues affecting firms, networks and associations, it is a trusted source for leading accounting news, as well as vital data and analysis provided by its survey features. Published by Timetric, International Accounting Bulletin tracks fee income and staff information from accounting networks and associations globally, regionally and across most G20 economies, with data spanning back more than a decade.