Big Four dominate professional services globally

The Managing Partners’ Forum was established in 1995 and is “dedicated to enhancing leadership and the status of the management team in professional firms worldwide.” They recently released the inaugural Global 500, a ranking of the top 500 professional services firms in the world by fee volume.

The Big Four are at the top of the list, with PricewaterhouseCoopers coming first, followed by Deloitte, Ernst & Young, and KPMG. Interestingly, Accenture, formerly Andersen Consulting, formerly a division of Arthur Andersen, formerly the auditor of Enron, formerly in existence, occupies the number five spot:

  1. PwC – $22.0B
  2. Deloitte – $20.0B
  3. Ernst & Young – $18.4B
  4. KPMG – $16.9B
  5. Accenture – $16.7B

I threw the numbers into Excel to do a little analysis. First, I wanted to see how they stacked up in terms of revenue per employee, since the report provided the number of employees. The third ranked firm in total revenue, Ernst & Young, is #1 when it comes to revenue per employee at approximately $161,000. The average of the Big Four is $154,000. The remainder of the four are in the same order as revenues, with PwC and Deloitte shuffling down to make way for E&Y:

  1. Ernst & Young – $161,000
  2. PwC – $154,000
  3. Deloitte – $151,000
  4. KPMG – $150,000

Beyond the Big Four, the next largest accounting firm is BDO at 22nd overall. Rounding out the top 10 accounting firms are Grant Thornton (35th), RSM (36th), Baker Tilly (46th), Horwath (48th) and Moores Rowland (50th). The average revenue per employee for those five firms is $114,230, which is significantly lower than BDO, in the middle of everyone, at $140,500.

The bottom of the Big Four in terms of total revenue is KPMG, but it is 332 per cent higher than BDO. There is about 10 per cent separating each of the Big Four, with PwC 10% larger than Deloitte, which is 9% larger than Ernst & Young, which is 9% larger than KPMG. BDO is about 40% larger than Grant Thornton and RSM. So the Big Four more spread out between each other than I’d originally thought, but is leagues above the rest of the pack which comes as no surprise at all.

It’s an interesting list, by an interesting ‘Forum’. Management in professional firms is a different beast altogether from management of more traditional “operations”. Experienced employees are an intangible asset of any type of business, but in professional services firms there are unique challenges which require special people skills. A good managing partner is so important to retaining strong team members and keeping them (us) satisfied.

(Via Accountancy Matters.)

Audit choice and competition in UK and G8

Jeremy Newman of BDO Stoy Hayward, highlights a key finding of the British Oxera Report on Audit Choice and Competition:

According to the report by Oxera on Competition and Choice published in April 2006 more than 70% of FTSE 100 companies had not held a competitive tender for the last 15 years. The incidence of companies switching auditors is even less frequent. According to the Oxera Report it is around 4% on average for listed companies and less than 3% for FTSE 350 companies.

It’s not just a problem in the UK, however. Grant Thornton researched the global audit market:

The levels of audit market concentration across the world’s eight largest economies are dangerously high, with the Big 4 firms responsible for up to 99% of large public company audits, according to research by leading accounting and business advisory firm Grant Thornton LLP in the UK. […] Analysis of auditor concentration among the G8 economies revealed a high of 99% in Italy, followed by the UK (98%), the US (97%), Canada (96%) and Russia (90%).

That, after Grant Thornton’s US boss issues a call for a study to be performed on the US audit market. Not sure what a study of the US market would reveal since the above quote references a 97% concentration of Big 4 firms on public company audits already. Clearly there is a problem.

Investors and businesses are not being well served by the current situation. I hate to advocate increased intervention by governments of any kind, but it’s clear that public company audit committees also hate to advocate for shareholders’ best interests in terms of rotating audit firms and/or partners.

Maybe the solution is increased coverage of public companies that switched their audit to a non Big 4 firm. I would love to hear from any company in Canada that made the switch and is happier and better served for it.

Firm using Facebook to recruit in Toronto

I’ve grown a bit tired of Facebook lately. I think it’s because what originally was a torrent of friend additions has gradually slowed to a trickle. (I meet lots of new people through my job but I doubt they want the auditor on their Facebook!)

It seems I’m not the only one who is questioning the system, but for other reasons. The lack of openness is leading some to compare it to AOL.

But despite our misgivings, the beast continues to grow. My city, Toronto, is apparently the “capital of Facebook”:

As a city, we have more members than New York, Los Angeles and San Francisco combined. Thirteen per cent of Torontonians have signed up. We not only have more members than any other city – 670,038 as of this week – we have more groups within the site talking about the goings on of our town.

What does this mean? The value of Facebook to its members increases exponentially as more people join, and for Torontonians, the value of a Facebook account is much higher than it would be for someone from, say, Saskatoon (29,475 members).

I wrote about Facebook before and compared it to LinkedIn. In the post I linked to some accounting-specific Facebook groups, including one I’ll mention again today: Ernst & Young Toronto.

I searched Facebook for groups for Toronto accountants, and the search turned up nothing very good other than the above group. Why are no more accounting firms in Toronto taking advantage of the massive percentage of the population using the site?

Recruiters are taking advantage of the clustering of Toronto accountants, as this screen grab from the Chartered Accountants of Canada group shows.

How long before firms in Toronto realize the recruiting potential of Facebook, as Ernst & Young has?

Lotteries are just regressive taxes

I like The Tax Foundation. They advocate some really smart tax policy in the US. They also have a good blog that regularly keeps me up on US tax, which isn’t something I ever need to know in my job, but is interesting nonetheless. They blogged about one of their Background Papers titled Gambling with Tax Policy: States’ Growing Reliance on Lottery Tax Revenue recently:

Lotteries are a source of implicit tax revenue and exemplify poor tax policy for a number of reasons. They are not economically neutral; they are regressive; they lack transparency; they unnecessarily complicate the tax system; earmarked funds are often not used as promised; and lotteries are a business for the private market, not a state government.

I don’t think too many people view lotteries as taxes, but they should. Bad taxes. The part above about lacking transparency hits close to home, as Ontario has experienced scandal lately because a disproportionate share of winners are store clerks:

Roughly 60,000 lottery ticket sellers in Ontario, retailers won nearly 200 times in the past seven years, with an average prize of $500,000. A statistician with the University of Toronto called those numbers a statistical anomaly, saying there is a “one in a trillion, trillion, trillion, trillion” chance of that many retailers winning.

And my province isn’t the only one with a problem:

The head of B.C.’s Lottery Corporation was fired last week, three days after a scathing ombudsman’s report, which found that the Crown-owned corporation was not doing enough to prevent unscrupulous retailers from fleecing the system.

Privatization is one option the BC is looking into, and the pressure is growing in Ontario to consider the option as well. What do you think? Should the lottery be a tax tool used by governments or a revenue tool used by private (for-profit or not for-profit) organizations?

Forced ranking at accounting firms?

Francine dishes on forced ranking at GE and the Big Four:

That is, compared to their peers, they don’t have the right stuff right now and their performance, although fine, is not as fine as the other 90%. So, with a poor rating instead of a positive rating, your choices are slim. No raise, no bonus, no ability to transfer, and a less enviable position at the negotiating table as far as a severance package when you do finally realize you have to leave. Oh, and don’t forget, with a poor rating on your record, there’s no rehire… […] One thing for sure. The standards for achieving success in a Big 4 firm are pretty clear. Conformance, Competence, Collegiality, and Chargeability.

The idea of forced ranking doesn’t sit well with me, as it sounds pretty harsh towards those unlucky few at the bottom. It makes sense that there are the best and worst performers at the top and bottom, and that most are average, but to fire or demote or otherwise retard the careers of those at the bottom doesn’t.

It is nearly impossible judge in this subjective manner whether the bottom few at your firm aren’t better than the average (or top) at another firm? Sort of depends on how good the hiring is at each place.

With new online and automated processes at some firms, there isn’t even the old signing of the review to signify acknowledgement and acceptance or rebuttal to signify disagreement.

At my firm, we use online forms to complete job and annual appraisals. It’s appraisal time right now actually as I would imagine it is at other firms, and I should be hearing about when mine is sometime in the next couple weeks. I’m looking forward to it!