Big 4 Advisory – Firms

What is Big 4 Advisory?

The Big 4 Advisory firms refer to four of the world’s premier accounting-owned consulting firms.

The 4 advisory firms are:

  1. PriceWaterhouseCoopers(PwC)
  2. Ernst & Young (E&Y)
  3. Deloitte
  4. KPMG

 

big 4 advisory

 

 

They offer a wide range of services (such as accounting, management consultancy, taxation, risk assessment and auditing) to primarily Fortune 500 individuals/companies. However, they also serve a large number of high growth start-ups and small private companies.

 

Factors that determine the industry dominance of the Big 4

The following factors determine the place of the Big 4 Advisory firms as industry leaders:

  • Size of the company
  • Economies of scale
  • Global out reach of the company
  • Reputation of the company
  • A semi-captive market

 

Services provided by the Big 4 Advisory firms

The Big 4 advisory firms provide a large number of services. However, they provide 5 core services:

 

Assurance/Audit 

An audit is defined as the process by which a client company’s financial statements are scrutinized to determine if the statements are accurate and fair. It is conducted by a team of accountants employed by the concerned firm.

 

The audit is one of the most important and pervasive service provided by the Big 4 Advisory firms as all public companies are required to furnish audited financial statements to provide accurate information to investors and shareholders. Furthermore, before a bank loans a large amount of money to any company, it needs the company’s audited financial statements to ensure the safety of the money lent. Thus, audits are also required by private companies.

 

The audit team carries out the following activities to determine the accuracy of a company’s financial statements:

 Review of supporting documents

  • Review of journal entries which constitute the financials
  • Understand how important financial transactions are presented in the statements through informed discussion with the client company’s employees

 

After the aforementioned steps have been completed with due diligence, the accounting team issues ‘an opinion on financials’. The ‘opinion on financials’ states the degree of confidence that the audit team has in the fairness and accuracy of the client company’s financial statements. The ‘opinion on financials’ is important information for the client company’s owners, lenders and investors because a high degree of confidence means that the company’s financials have received the approval of a Big 4 Advisory firm and thus are legitimate.

 

Advisory/Consulting

Advisory/Consulting refers to the act of providing a third part with expert knowledge for a fee. The consulting services provided by the Big 4 include:

 

  • Increasing the efficiency of a company through an analysis of its processes.
  • Risk management i.e. determining the threats faced by the company and suggesting appropriate mitigation strategies/solutions
  • Creation of financial reporting programs which leverage the latest technology for the company
  • Creation of accounting programs which leverage the latest technology for the company

 

It is important to note that in the US, a Big 4 advisory firm providing consulting services to a company cannot provide auditing services to the same company. This is to ensure that the auditor has no financial interest in the company and thus, will produce accurate and unbiased audit reports.

 

Tax

Tax refers to the services provided by the Big 4 Advisory firms to help their clients navigate the local and national tax laws. The most popular tax service provide by the Big 4 is the creation of tax avoidance strategies – this involves helping the client to structure their transactions in a manner which creates a tax- advantage of the company’s (such as refunds, deductions etc.) or minimizes the tax costs. The tax team also helps the client company with international tax filing and regulatory filings.  The tax team also collaborates with the audit team because the financial statements of a company include a large amount of information regarding the company’ tax filings. Together, the two teams assess the accuracy of the tax related information disclosed by the company in its financial statements.

 

Transactions/Deals

Transactions/deals refer to the act of carrying out and/or facilitating mergers and acquisitions, spin-offs, leveraged buyouts, divestment etc. The Big 4 firms provide the following transaction services:

 

  • Assessing the accounting implication of a transaction on the client
  • Assessing and advising on the tax implication of a transaction on the client
  • Performing due diligence on the acquisition target/the section of the company being divested to ensure that the company is getting a fair deal
  • Building valuation models for the company by using appropriate financial information
  • Consulting with the client before, during and after the deal has been carried out to ensure that the company adjusts efficiently to the changes in its working.

 

Fraud investigation

The fraud investigation team travels extensively (both domestically and internationally) to help the company detect fraud and/or embezzlement. The fraud investigation team uses psychological tactics, the latest technology and cutting-edge financial and accounting analysis to uncover fraud.

 

Find out more

The Big 4 Advisory firms are an important part of the global financial ecosystem. Find out more by clicking on the following links.