Deloitte Vs. EY Vs. KPMG Vs. PwC: A New World No.1 in Accounting Emerges

In January every year, CFO Innovation tallies the revenues of the Big Four accounting firms in US dollar terms. In 2013 and 2014, the No. 1 firm was Deloitte.

For fiscal year 2015, the bragging rights as the biggest of the Big Four accounting firms go to . . .  PwC, which reported revenues of US$35.4 billion to Deloitte’s US$35.2 billion.

Is this a reversion to the mean? From 2007 to 2015, PwC has topped the revenue leagues six times, and Deloitte three times. It was in 2010 that Deloitte first got to No. 1 – beating PwC by a very narrow margin of just US$9 million.

This time, the difference between PwC and Deloitte is around US$200 million, roughly the same margin as last year, when it was Deloitte that had the edge over PwC.

Both firms had yet another record year, though. PwC’s revenue rose 4.3% from fiscal 2014, while Deloitte’s was up 2.9%. EY, consistently the No. 3 firm, had a great year too – revenues hit an all-time high of US$28.7 billion, up 4.7% from the previous year.

Things did not turn out as well at KPMG, whose US$24.4 billion in revenues were 1.6% lower than in 2014. “The relative strength of the US dollar impacted FY15 global revenues when expressed in US$,” KPMG explains in its annual report. In local-currency terms, KPMG revenues were up 8.1%.

It’s the fifth consecutive year that the Big Four as a collective had jumped to a new high, but the pace of growth is slowing

Story of the Numbers

In total, the Big Four firms grew revenues to a record US$123.7 billion in fiscal year 2015, up 2.8% from fiscal 2014’s US$120.4 billion (see chart below).

Fifth Record Year
Big Four revenues, US$ billion

*Fiscal year to 31 May 2015 for Deloitte, 30 June 2015 for PwC and EY, 30 September 2015 for KPMG. Gross revenues are inclusive of expenses billed to clients. Sources: Deloitte, EY, KPMG and PwC

It’s the fifth consecutive year that the Big Four as a collective had jumped to a new high after revenues plummeted by 7.4% in 2009, at the height of the global financial crisis. But the pace of growth is slowing. The 2.8% rise in total revenues is less than the 5.9% increase in fiscal 2014 in US dollar terms.

Slowing Momentum
Year-over-year change, Big Four revenues

Local currencies were translated to US dollars at the average exchange rate for the fiscal year. Sources: Deloitte, EY, KPMG, PwC, CFO Innovation

As in fiscal 2014, the growth in revenues last year appears to be underpinned by the economic recovery in the US – the Americas accounted for 52% of Deloitte’s 2015 revenues, and around 41% for both PwC and EY. 

KPMG is the only Big Four firm to have seen smaller revenues in 2015 in US dollar terms – down 1.6% from 2014

The geographical revenue mix explains KPMG’s disappointing performance in US dollar terms. Half of its revenues come from Europe, Middle East, India and Africa, where local currencies including the euro and rupee have fallen in value against the US dollar. The Americas account for just 34% of KPMG’s revenues (see chart below).

Also, KPMG’s fiscal year ends in September, three to four months later than its peers, which exposes it longer to dollar strength – the rupee, for example, was notably weaker in the second half of 2015 than the first half.

Big Four 2015 Revenues
By accounting firm and region

*Includes India, for EY and KPMG.  Sources: Deloitte, EY, KPMG and PwC

Bottom of the Four

By firm, growth rates have slowed as well. In US dollar terms, No. 3 EY grew revenues the fastest at 4.7% (though that is lower than its 6.2% pace in 2014), followed closely by No. 1 PwC’s 4.3% (2014: 5.8%). No. 2 Deloitte managed to increase revenues by only 2.9% in US dollar terms, compared with 5.6% in 2014.

KPMG is the only Big Four firm to have seen smaller revenues in 2015 in US dollar terms – down 1.6% from 2014. It has been consistently in the cellar since at least 2007. The gap between KPMG and the top two leaders, PwC and Deloitte, has since been growing larger. Last year, even EY pulled further ahead of KPMG (see chart below). 

Three Growers and a Laggard
Big Four Revenues 2007-2015

Click image to enlarge

*Fiscal year to 31 May 2015 for Deloitte, 30 June 2015 for PwC and E&Y, 30 September 2015 for KPMG. Sources: Deloitte, EY, KPMG and PwC

Can KPMG catch up? This is the question we’ve been asking for several years now, and it seems the answer is no. While revenue growth improved in 2014 (up 6% in US dollar terms from 2013), it has now dipped into negative territory. It would seem that KPMG is going to be the bottom-dweller in the foreseeable future.

If it’s any consolation, KPMG’s fourth-place position is not under threat from non-Big Four up-and-coming firms. BDO had revenues of US$7.3 billion in the year to September 30, 2015, up 12.9% in US dollar terms. That's just 30% of KPMG's revenues. Grant Thornton reported global revenues of US$4.6 billion in the same period, down 2% in US dollar terms (but up 6% in local currencies). In US dollar terms, Grant Thornton’s revenues equal only 19% of KPMG’s. 

Advisory Vs. Audit

Deloitte makes more than half of its revenues from advisory (including consultancy and financial advisory), at 53% (up from 41% in 2013). Audit now accounts for only 28% of revenues (40% in 2013), followed by tax at 19% (same as in 2013).

PwC’s merger with major strategy consulting firm Booz & Company in 2014 (now known as Strategy&) is apparently bearing fruit – advisory revenues were up 12.3% in 2015

In contrast, PwC is still focused on audit, which accounts for 43% of its 2015 revenues (from 46% in 2013). Advisory is 32% (from 29% in 2013) and tax is 25% (2013: 25%).

EY and KPMG have similar profiles as PWC, with audit accounting for 40%-41% of revenues and advisory at 34%-37% (see chart below).  

Big Four 2015 Revenues
By accounting firm and service line

*Includes Consulting and Financial Advisory for Deloitte, and Transaction Advisory Services for EY. Sources: Deloitte, EY, KPMG and PwC

In terms of service lines, Deloitte appears to be in a better position for growth compared with the other three because of its focus on advisory.

For all four firms, advisory was the fastest growing service line in 2015, at 7.5%, as it was in 2014 (when advisory revenues jumped 18.2%). In contrast, revenues from audit were down 1.3% (2014: an even steeper minus-4.1%).

Growth in Big Four Revenues, 2015
By accounting firm and service line

Click image to enlarge

*Includes Consulting and Financial Advisory for Deloitte, and Transaction Advisory Services for EY. Sources: Deloitte, EY, KPMG and PwC

KPMG’s advisory revenues were flat in 2015, even as audit billings fell 4.1% in US dollar terms. It has done more than 30 acquisitions and strategic alliances, including the acquisition of small consultancy Boxwood last year, but has yet to see an uptick in advisory revenues as a result.

PwC’s merger with major strategy consulting firm Booz & Company in 2014 (now known as Strategy&) is apparently bearing fruit – advisory revenues were up 12.3% in 2015 (2014: 9.3%). Deloitte, which took control of Monitor Group in 2012 and acquired nine smaller companies in 2015, grew advisory revenues 6.8% in 2015 (2014: 33.3%).

EY has bought several small firms, including governance, risk and compliance firm Integrc and France’s Bluestone Consulting last year. Advisory revenues jumped 10.7% last year (2014: 11.6%).

Still Growing in Asia

In 2015, Big Four revenues in Asia-Pacific topped US$18.6 billion in US dollar terms (from US$18.2 billion in 2014). In aggregate, Asia Pacific accounted for 15% of total revenues, unchanged from 2014 but lower than the 16% in 2013 and 17% in 2012.

The Big Four continued a hiring spree in 2015 – their combined workforce of 818,875 partners, professionals and administrative staff is 8.3% larger than in 2014

The Americas contributed 45% (2014: 43%), and Europe and the rest of the world 40% (2014: 42%).

Big Four 2015 Revenues, By region

*Includes India, for EY and KPMG. Sources: Deloitte, EY, KPMG and PwC

The 2% increase in Asia revenues is a reversal from the contraction in US dollar terms in 2014 and 2013. Even in those years, however, local currency revenues had actually grown strongly.

In 2015, local currency revenues in Asia were up 9% for PwC (US dollar terms: 3.6%), with billings in India surging 17% and China and Hong Kong up 8%. Asian revenues at KPMG were higher by 8.2% in local-currency terms (US dollar terms: 2.6%). At EY, Asia Pacific ex-Japan revenues in local currencies were up 11.2% (US dollar terms: 6%), and Japan 4.6% (US dollar terms minus-7.8%).

Despite the economic slowdown in China and volatility in other Asian emerging markets, the Big Four are continuing to grow their business in the region. China’s economy grew only 6.9% last year, the slowest in a quarter of a century, but that still provides a lot of juice for business activity. The International Monetary Fund forecasts GDP growth of 6.3% and 6.0% this year and next.   

Outlook 2016

That’s good news for the region’s finance professionals in accounting and consultancy, as well as those in business. The Big Four continued a hiring spree in 2015 – their combined workforce of 818,875 partners, professionals and administrative staff is 8.3% larger than in 2014.  

EY reports that partner promotions in fiscal 2015 were the largest since 2008, “with 753 people promoted to partner, as well as 618 direct admit partners.” A third of the new partners are based in emerging markets, and 31% are women.  At PwC, 604 people were appointed new partners, a fourth of them women. An additional 300 new partners came in from the former Booz & Company.

Conflict-of-interest rules dictate that auditors and consultants come from different firms, and more and more jurisdictions are requiring regular rotation of audit firms for big companies.

For CFOs, the apparent healthy growth in the Big Four’s service lines, geographical reach and depth of talent should therefore be positive, insofar as the trend gives them access to better quality service from a deeper bench of specialists – and hopefully at competitive prices. 

About the Author

Cesar Bacani is Editor-in-Chief of CFO Innovation. 

Photo credit: Shutterstock 

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