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 an enthusiast deeply immersed in the world of accounting, particularly the history and evolution of the Big 5 accounting firms, I bring a wealth of firsthand expertise and a comprehensive understanding of the subject matter. Having extensively studied the intricacies of the accounting industry and its major players, I can confidently guide you through the evolution of these firms and their significant impact on the global business landscape.
The Big 5 accounting firms, which later became the Big 4, played a pivotal role in shaping the accounting profession. The transition from the Big 8 to the Big 6 and eventually the Big 5 was marked by a series of mergers and consolidations among major accounting firms. One of the notable mergers occurred in 1989 when Arthur Young merged with Ernst & Whinney, and Deloitte Haskins Sells merged with Touche Ross, forming the Big 6 accounting firms. The final consolidation took place in 1998 with the merger of Pricewaterhouse and Coopers & Lybrand, resulting in the formation of the Big 4 accounting firms we recognize today.
The Big 5 accounting firms, consisting of Ernst & Young, Deloitte & Touche, Arthur Andersen, KPMG, and Price Waterhouse Coopers, were dominant players until 2002. However, the landscape changed dramatically when Arthur Andersen faced a severe setback. In the aftermath of the Enron Scandal in 2002, Arthur Andersen was found guilty of obstructing justice, leading to its exclusion from the prestigious group. Although the conviction was later overturned, the damage to its reputation was irreversible.
Arthur Andersen, founded in 1913 by a Northwestern University professor named Arthur Andersen, had established itself as a global professional services firm. The firm's unfortunate association with Enron, a client involved in fraudulent activities, tarnished its image. Notably, Arthur Andersen was also recognized for its growth in the consulting business, which eventually spun off and rebranded as Accenture.
In the aftermath of Enron, major accounting firms, including the Big 4, took measures to address concerns about independence. Most notably, they spun off their consulting operations, with the consulting businesses later reestablishing themselves as separate entities. Today, the Big 4 accounting firms have not only recovered but have also grown their consulting businesses into significant contributors to their overall revenue.
Each of the Big 4 accounting firms has a unique history shaped by mergers and strategic decisions. Ernst & Young, formed in 1989, resulted from the merger of Arthur Young and Ernst and Whinney. PwC, formed in 1998, emerged from the merger between Pricewaterhouse and Coopers & Lybrand. KPMG, established in 1987, came into being through the merger of Peat Marwick International and Klynveld Main Goerdeler. Deloitte, formed in 1989, was the result of the merger between Deloitte Haskins and Sells and Touche Ross.
What distinguishes the Big 4 from other accounting firms is their global reach and commitment to serving the largest companies in the world. Unlike regional firms, the Big 4 recognize the need to provide services internationally, catering to clients operating in various countries. This international expansion has been a key factor in the success and dominance of the Big 4 accounting firms, solidifying their position as leaders in the industry.
