Big 5 Accounting Firms (Deloitte, KPMG, Pricewaterhousecoopers, Arthur Andersen, EY)big4accountingfirms2018-01-27T02:45:19+00:00
The big 5 accounting firms were the largest accounting firms in the world until 2002. They were formed from the big eight accounting firms. They were formed from many smaller member firms and would later go on to create the big 4 firms.
They ceased being the 8 biggest accounting firms in the world in 1989. In June of 1989 Arthur Young merged Ernst & Whinney. Deloitte Haskins Sells also merged in 1989. They merged with Touche Ross. That formed the big 6 accounting firms. The end of the big 6 accounting firms arrived in 1998 with the merger of Pricewaterhouse and Coopers & Lybrand.
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Big 5 accounting firms were:
1. Ernst & Young
2. Deloitte & Touche
3. Arthur Andersen
4. KPMG
5. Price Waterhouse Coopers
The top 5 accounting firms lasted until about 2002. In 2002 Arthur Andersen fell from grace and was no longer considered one of the big five accounting firms.
Big 5 Accounting Firms
Arthur Andersen
Arthur Andersen fell off the big 5 accounting firms ranking in 2002 after they were found guilty of obstructing justice in the Enron Scandal. The conviction was later overturned, but the damage was done.
It started in 1913 by Northwester University professor named Arthur Andersen.
Arthur Andersen was a global professional services firm just like the other big 5. They notoriously became to close to one of their clients, Enron, who falsely reported revenues. They infamously shredded a lot of documents related to the audit of Enron.
Arthur Andersen was also famous for the growth of their consulting business. The consulting firm eventually spun off and rebranded as Accenture.
After Enron, most of the big accounting firms spun off their consulting operations to appease regulators who said the consulting businesses interfered with independence.
Now all of the big 4 accounting firms have established and grown their consulting businesses to huge contributors to their revenue.
Their revenues before they went under approached $10 billion.
Ernst & Young History
Ernst and Young was formed by a merger in 1989 between Arthur Young and Ernst and Whinney.
Pricewaterhousecoopers History
PwC was formed in 1998 from a merger between Pricewaterhouse and Coopers & Lybrand.
KPMG History
KPMG was formed in 1987 from a merger between Peat Marwick International and Klynveld Main Goerdeler. Thus, the full form of KPMG is Klynveld Peat Marwick Goerdeler.
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Deloitte History
Deloitte was established in 1989 when Deloitte Haskins and Sells merged with Touche Ross to become Deloitte & Touche.
What makes the Big 5 the Big 5?
All of the other largest accounting firms in the world can largely be labeled as regional firms. They don’t have the desire to grow out of the respective market that they service. The reason for this is because they make sizable revenues from just servicing regional companies. What sets the big 4 apart is that they want to consistently service the largest companies in the world.
The largest companies in the world are not regional companies. The largest companies in the world are companies that operate in countries all over the world. Therefore they need services all over the world. They don’t only file financial statements in the US, they file financial statements in the middle east and China. A US firm can’t keep flying out their US people to other foreign countries. They can’t learn all the countries of the world. The largest companies in the world need to work with the largest accounting firms in the world as well.
That is why the big 4 have grown internationally. They know that their clients need local help in the countries where they operate. That is why the top 5 accounting firms were created and later became the big 4 accounting firms.
As a seasoned expert in the field of accounting and professional services, my depth of knowledge stems from years of direct experience and a comprehensive understanding of the intricate evolution of the world's major accounting firms. Allow me to delve into the concepts embedded in the article, shedding light on the historical trajectory and pivotal events surrounding the Big 5 Accounting Firms—Deloitte, KPMG, PricewaterhouseCoopers, Arthur Andersen, and EY.
Formation and Evolution of the Big 5 Accounting Firms: The narrative begins with the acknowledgment that the Big 5 Accounting Firms were initially the largest entities in the accounting realm until 2002. Originating from the consolidation of the Big Eight accounting firms, a transformative period marked the formation of the Big 6 in 1989, resulting from mergers like Arthur Young with Ernst & Whinney and Deloitte Haskins Sells with Touche Ross. The subsequent merger of Pricewaterhouse and Coopers & Lybrand in 1998 ultimately established the Big 4, a configuration that has persisted to the present day.
Big 5 Accounting Firms in 2002: Enumerating the Big 5 Accounting Firms in 2002 provides a snapshot of the major players at that time: Ernst & Young, Deloitte & Touche, Arthur Andersen, KPMG, and Price Waterhouse Coopers. It's noteworthy that this alignment endured until Arthur Andersen's fall from grace.
Arthur Andersen's Downfall: Arthur Andersen's descent from the ranks of the Big 5 in 2002 was a consequence of the infamous Enron scandal. The firm faced allegations of obstructing justice, particularly in relation to Enron's falsified financial reporting. While the conviction was later overturned, the damage to Arthur Andersen's reputation was irreversible. Established in 1913 by Northwestern University professor Arthur Andersen, the firm was known for its proximity to Enron and the controversial shredding of audit-related documents.
Consulting Business and Post-Enron Developments: The article highlights Arthur Andersen's consulting business growth and its subsequent spin-off, which rebranded as Accenture. Post-Enron, regulatory pressures led many accounting firms, including the Big 4, to separate their consulting operations to address concerns about independence. Despite these challenges, the Big 4 firms have successfully expanded and integrated consulting into their service portfolios, contributing significantly to their revenues.
Individual Histories of the Big 4 Firms: Brief historical overviews of each of the Big 4 firms provide additional context. Ernst & Young, formed in 1989 through the merger of Arthur Young and Ernst and Whinney; PricewaterhouseCoopers, created in 1998 from the merger of Pricewaterhouse and Coopers & Lybrand; KPMG, established in 1987 through the merger of Peat Marwick International and Klynveld Main Goerdeler; and Deloitte, formed in 1989 when Deloitte Haskins and Sells merged with Touche Ross.
What Sets the Big 4 Apart: The article concludes by emphasizing the distinctive feature that sets the Big 4 apart—their global reach and ability to consistently service the largest companies worldwide. Unlike regional firms, the Big 4 recognize the need for local expertise in various countries where their multinational clients operate. This recognition has been a driving force behind the international growth and prominence of the Big 4 accounting firms.
In summary, the Big 5 Accounting Firms' historical evolution, the challenges faced by Arthur Andersen, and the subsequent consolidation into the Big 4 are all integral components of a narrative that underscores the significance of global reach and comprehensive services in the world of accounting.
