1.11 Size and Scope of the Public Accounting Firm

Public accounting firms are organizations that provide professional services to their clients. These services may include auditing, attestation, assurance, tax preparation, tax strategy, business valuation, risk assessment, information system design and implementation, and other consulting engagements. Because a public accountant engaged to perform an audit of a company’s financial statements is required to be independent of the client, he is often referred to as the independent auditor or the external auditor.

Size and Scope of a Firm

Public accounting firms range in size from a single-person firm to a multi-national firm employing tens of thousands of employees. In general, public accounting firms provide services to business clients of similar sizes. For example, a smaller local accounting firm is unlikely to possess the expertise and human resources to provide effective services to a Fortune 500 company like Walmart or Exxon Mobil. On the other hand, a large multi-national accounting firm would likely be too expensive (and too busy) to provide services to a local restaurant or used car dealership. Because companies of all sizes and in all industries have needs for public accounting services, the market is filled with public accounting firms that vary in size and expertise.

The largest four public accounting firms (known as the Big 4) are global networks of partners and other professionals who provide services to the vast majority of the largest companies around the world. As a general rule, if you can think of a company with national or global brand recognition, it is most likely audited by one of the Big 4 firms. Beyond the Big 4 is a relatively short list of national and large regional firms that provide services to the next tier of business clients. The vast majority of public accounting firms are smaller local and regional firms that meet the needs of the various local and regional clients in their respective areas.

The table below includes data on the ten largest public accounting firms in the world according to the Public Accounting Report’s 2018 Top 10 U.S. Public Accounting Firms Survey. 1

Table 1.1
Accounting Report’s 2018 Top 10 U.S. Public Accounting Firms Survey
Firm Name 2018 U.S. Revenues ($M) 2018 Global Revenues ($M) U.S. Partners U.S. Non-partner Professionals Number of U.S. Offices U.S. Fee Split %
            Audit Tax Consulting Other
Deloitte 18,551 43,200 3,135 68,077 115 29 17 49 5
PricewaterhouseCoopers 15,620 41,300 3,327 NA 92 42 25 33 0
Ernst & Young 13,000 34,770 3,200 34,500 82 32 29 31 8
KPMG 8,960 28,960 2,178 25,928 110 38 36 25 1
RSM 1,979 5,100 799 7,097 90 36 26 38 0
Grant Thorton 1,751 1,800 615 6,415 59 36 26 38 0
BDO 1,410 8,990 563 4,842 67 49 34 17 0
CliftonLarsonAllen (CLA) 865 957 735 4,081 39 36 33 5 26
Crowe Horwath 847 3,800 314 3,041 35 30 25 45 0
CBIZ & MHM 719 855 423 2,412 75 34 27 39 0

Notice the dramatic differences between the Big 4 firms and the next tier of public accounting firms. For example, the smallest Big 4 firm (KPMG) generates nearly $38 million in revenue annually and employs more than 28,000 professionals. The largest non-Big 4 firm (RSM) produces just over $7 million in global revenues and employs fewer than 8,000 professionals. To further illustrate the disparity in firm size, consider the following: you could add up the annual revenues of the largest 10 non-Big 4 firms and still generate less than the smallest of the Big 4 firms. These differences increase dramatically when looking at client revenues and numbers of public company clients.

Many people have expressed concern regarding the perceived lack of competition in the market for auditing services, particularly for the larger public companies around the world. As mentioned previously, large clients are generally served by the largest accounting firms due to the small firms’ lack of personnel and other resources necessary to perform the audit of these large clients.

Independence requirements prohibit external auditors from providing a variety of non-audit services for their audit clients. As a result, most large public companies employ at least two of the Big 4 firms: one to perform the audit and another to provide consulting and other non-audit services. When you consider that the Big 4 firms also specialize in certain industries, a given company may only have two or three public accounting firms to choose from when deciding which firm to engage as its external auditor.

Because of these inherent restrictions, large firms may feel limited in their choice of public accounting firms. The United States Government Accountability Office (GAO) has performed two separate studies regarding concentration in the market for auditing services. In general, they have concluded that the lack of competition in the market is not a significant concern because no significant negative effect on the market for audit services has been observed (GAO 2003, GAO 2008).

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