The Big Four is the name given to the big four accounting firms in the United States. They are the top accounting firms by revenue. Let’s find out more about these firms, what they do, who they are, and how important they are.
The weight of these four large firms in the US economy is very significant. In addition to auditing services, these firms are active in other areas such as market research, tax consulting services, legal advice, and also in different business models such as wealth management consulting valuation and appraisal and strategic consulting.
Who makes up the Big Four group
The Big Four is composed of:
- Ernst & Young
- Klynveld Peat Marwick Goerdeler
For all intents and purposes, in addition to auditing the vast majority of S&P 500 companies, they are considered the largest US accounting firms. That gives them great influence on the markets. But also an enormous weight from the point of view of the valuation and audits they perform.
The history of this group can be considered to start in the late 1980s. There was a group of up to eight large accounting firms at that time. These firms were mainly American and also some British firms.
The eight firms were reduced to six after the first mergers, then five with Price Waterhouse and Coopers & Lybrand fusion. Finally, the bankruptcy of Arthur Andersen, triggered by the Enron scandal, eventually reduced the group to four.
Why are these companies so important?
To understand the importance of these four firms, we need to know that they are responsible for auditing some of the largest public companies in the world. Virtually all Fortune 500 companies are audited by one of the Big Four.
The list of companies they audit is huge; an example of different market areas could be:
- Berkshire Hathaway
Another important aspect to note about these companies is their size. Before the pandemic, the average number of employees per company was over 250,000. On the other hand, the 2020 annual revenues showed the economic health of these accounting giants:
- Deloitte: $47.2bn.
- PricewaterhouseCoopers: US$43 billion
- Ernst & Young: US$37.2 billion
- Klynveld Peat Marwick Goerdeler: US$ 29.8 billion
The market weight of these four accounting giants is enormous. Using their services is already a synonym of guarantee and external image for any company. On the other hand, from the point of view of social impact, they have an enormous volume of social action programs and job creation.
In short, they are key players in understanding the current financial system and its control and auditing. They are also related consultancy and advisory giants in all areas of the economy, from the practical to the legal.
Not everyone agrees with these companies
The importance of these companies and their influence on the market has led to some critical voices. The harshest criticisms come from the depth of the audits of the accounting firms’ largest clients.
These criticisms translate into complaints that audits are not as intensive as they should be in some major audited companies.
To support this kind of criticism, many examples of massive frauds are carried out by companies supposedly audited or under the scrutiny of the Big Four (or one of the former big auditing firms). Examples of such frauds could be Enron or WorldCom.
Nevertheless, the importance of the Big Four remains paramount when it comes to auditing companies. This fact, moreover, shows no sign of changing, and they stay the big audits of the financial market.