Categories
Auditing

Are small-caps better served by mid-size firms?

A little late, but a blog post at CFO.com about the level of service a small-cap public company can expect to receive from a Big Four auditor compared to a mid-size firm seemed interesting enough to share:

CFO.com reader Kunal Ganguly wrote us to say a company of Catapult’s size, with its $102 million market cap, shouldn’t have been using a giant like Deloitte anyway. A local firm would be a better fit because it likely has more experience handling companies of a smaller size, he thinks. Adds accounting professor Zafar Iqbal: “[Smaller] public accounting firms have more experience with, and better knowledge of, the needs of smaller clients. Thus they are in a position to add more value.”

Catapult Communications is a US company based in California that recently announced it was switching from Deloitte to Stonefield Josephson and saving roughly 45% of their usual audit costs to do so. To be honest when I first read about the move it didn’t strike me as all that remarkable. Companies change auditors and save money doing so all the time. Not 43 to 49% of fees, sure, but it wasn’t as if the sky was falling.

Truth is, the stories in the media made this all about the money, which is why the blog post was special. It focuses on the quality of service and expertise Catapult and other smaller companies can expect to receive from a non Big Four audit firm. Something to think about, if you’re in the market for assurance services.

Categories
Profession

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.)

Categories
Profession

Big 6 accounting firms call for changes

The Big Four audit firms – Deloitte, Ernst & Young, PricewaterhouseCoopers, and KPMG – along with the number five and six firms – BDO and Grant Thornton – have joined forces to call for significant changes to the way public companies report their results.

They propose businesses report realtime financial data via the Internet, rather than quarterlies. It’s obvious that this would provide more timely information for investors, and that’s a good thing. It also seems like this could at least take advantage of the costly effects of Sarbox, that of thoroughly documenting controls – because the controls would be even more critical if information is constantly updated and available.

Either way it’s nice to know the guys at the top are still thinking about ways to improve the industry. Taking advantage of technology, especially the web-based variety, will continue to grow in importance not just for auditors and accountants, but in every aspect of business. Some accountant bloggers have been quite hysterical about the lack of focus on our part on technology.

Now if I can slide off on a tangent, I’d like to draw your attention to the headline (from the link above): “Accounting firms want company accounts revamp, paper says.” First of all, is this even a sentence? Is revamp a noun now? I had to read that thing several times over to really get what they were trying to say.