The Big Four accounting firms are coming off a big year and headed for another, perhaps even bigger one. And if you’re a corporate client, it’s likely going to cost you, according to analysts studying this increasingly concentrated industry.
Big4.com, a leading source for information about the largest accounting firms—PricewaterhouseCoopers, Deloitte, Ernst & Young and KMPG, all private partnerships—recently released a report showing the firms’ revenue grew collectively by 9% in 2011, to $103 billion. That represents a major rebound from the recession years of 2009 and 2010, and tops the previous Big Four revenue record of $101 billion in 2008.
The Big4.com study shows PwC reclaimed the top spot in 2011 as its revenue grew 10% to $29.2 billion, passing Deloitte, whose $28.8 billion in revenue was up just 8.4%. KPMG showed the strongest growth, up 10.1% to $22.7 billion, moving it closer to third-ranked Ernst & Young, which had $22.9 billion in revenue, a gain of just 7.6%.
The Big Four revenue growth reflects the declining dollar, which increased the dollar value of fees earned abroad, as well as growing business in emerging markets, especially Asia, where their revenue more than doubled, from $7 billion to $17 billion. Another big factor was a boom in advisory services, which increased by 16% last year.
Rick Telberg, an industry analyst at Bay Street Group, expects the accounting industry to do even better this year, especially top-ranked firms. With the implementation of Dodd-Frank and other reforms, their clients will have to deal with “a host of legal and regulatory issues,” Telberg says. “The finance industry had a key hand in molding Dodd-Frank. Washington lobbyists were all over that bill, and the big accounting firms were also at the table as it was being written. Corporate treasurers and CFOs were not at that table.”
What’s good for the accounting industry could mean higher costs for clients. Salome J. Tinker, director of accounting and financial reporting at the Association for Financial Professionals, says companies can expect higher accounting and audit costs. “I would compare it to after the passage of Sarbanes-Oxley,” Tinker says, “only hopefully not quite as bad. There will be more work for audit firms, who will be in scare mode because of Dodd-Frank, and companies will be in scare mode too, so their accounting costs will also be higher.”
The Big4.com report is available here.