A report on big 4 Auditing Companies

Sai Saranya Iyer R

Nandita K

Hayagreevan GP

VIT BUSINESS SCHOOL

Market Analysis of BIG

4 A group of Auditing & consulting Firms

Contents

VIT Business School ..................................................................................................................................... 3

Introduction to BIG FOUR ............................................................................................................................. 4

Market Share Analysis................................................................................................................................... 4

Labor-capital Ratio ........................................................................................................................................ 5

Reported Fee Income .................................................................................................................................... 7

Company Analysis ......................................................................................................................................... 8

Conclusion ..................................................................................................................................................... 9

VIT Business School

VIT University was established in 1984 by well-known educationalist and former

parliamentarian, Dr. G. Viswanathan, Founder and Chancellor. Dr. V. Raju, Former

Professor of State University of New York, USA, currently the Vice Chancellor, Dr. Anand

A. Samuel, Pro-Vice Chancellor. Chennai Campus is in Vandalur-Kelambakkam Road.VIT

University has more than 17 Bachelor’s and 32 Masters’ programmes, 29000 (including 1000

foreign students from 44 countries) and 4000 faculty members

Accreditation:

The National Assessment and Accreditation Council (NAAC) of the University Grants

Commission (UGC) has accredited the university with a 'A'.

The Institution of Engineering and Technology (IET), and the Energy Institute, UK have

audited the teaching-learning processes at VIT and accredited the programmes in 2004, with

the highest validity of five years

Programmes at VIT are accredited by the Institution of Engineers, India (IEI).

The Accreditation Board for Engineering and Technology (ABET) of the USA accredited the

Civil, Mech, CSE, biomedical, ECE, EEE programmes.

VIT Business School, under the aegis VIT University has created a niche for itself as an

institution promoting excellence in management education and research with Dr. M J Xavier as

its Executive Director.

Sincere Thanks to Dr. James Daniel Paul for having given us this wonderful opportunity to do a

complete study on market for the companies of our own interest.

Introduction to BIG FOUR

Big Four are the four largest integrated international professional services network.

The Four major big firms namely, Deloitte & Touche, KPMG, Ernst & Young, PWC

have integrated and entered into an agreement to share a common brand name, quality

standards etc. They handle vast majority of Audit for publicly Traded companies and also

for the private companies and thereby creating oligopoly market in Auditing Big Firms.

Services offered

Audit

Assurance

Tax

Consulting

Advisory

Corporate Finance

Legal services

Market Share Analysis

Market share is the percentage of a market accounted for by a specific entity.

Marketers need to be able to translate and incorporate sales targets into market share because this

will demonstrate whether forecasts are to be attained by growing with the market or by capturing

share from competitors. Market share is closely monitored for signs of change in the competitive

landscape, and it frequently drives strategic or tactical action. Increasing Market share is one of

the most important objectives of a business houses.

Market share is said to be a key indicator of market competitiveness.

The following Pie chart depicts the market share of Big Four companies and the other

competitors which is made based on the sales Turnover and the same may be presented in the

Tabular form also.

From this diagram it’s clearly understood that the majority of market share holding of 26% is

vested with the Deloitte and the Pwc companies while Ernst & young holds 21% and KPMG

holds 19% and others remaining percentage of share in the market contributing to 100% in total.

Labor-capital Ratio

Labor to capital Ratio brings us the relationship between Labor in the organization and

the capital invested by the proprietor to evaluate the efficiency of the firm.

It may be obtained by using the following formula and that is

Labor-capital ratio = Capital/ No of workers.

Capital employed must be taken into consideration only the paid up share capital of the company

and not the authorized capital. No of Employees for companies all over the world is found out

and divided with Total capital.

26%

26%21%

19%

3%5%0%0%

Turnover

Delloitte

PwC

EY

KPMG

Grant Thornton

BDO

RSM Tenon

Smith & Williamson

Total of Man power:

• Deloitte ------------------ 2,00,000

• PWC ----------------- 1,84,000

• Ernst & Young ---------- 1,75,000

• KPMG -------------------- 1,55,000

The above bar graph denotes the relationship between Capital invested and Labor hired by

the Employer. In this graph, X axis represents the Name of the company while Y axis represents

the percentage of Labor-capital Ratio which has been calculated by using above said formula.

As for as any organization concerned irrespective of the size of business, it’s main factors of

production would be Man power. It has a highest & vital role among the four factors of

production.

Delloitte PwC EY KPMGGrant

ThorntonBDO

RSMTenon

Labour capital ratio 0.6172 0.5607 0.7364 0.641 0.8444 0.1782 0.8

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

Professionals capital ratio

Labour capital ratio

Reported Fee Income

The BIG FOUR companies are the Auditing and consulting firms and have a major

revenue in the form of Fees. Revenue means profit or money making by the business for their

products and services. Their Revenues were obtained and compared.

The above Bar Graph shows us the Revenue of BIG FOUR Auditing firms for the year

ending 2013. It’s clearly known that Deloitte company is at the Top earning a Revenue of $32.4

Billion. PWC makes a revenue of $32.1 Billion, Ernst & Young makes a revenue of $23.42

Billion and finally KPMG makes a revenue of $25.38 Billion.

According to survey from International Accounting Bulletin, Deloitte replaces PWC as

biggest global firm by revenue.

Company Analysis

Fundamental analysis seeks to determine the intrinsic value of a company's stock. But since

qualitative factors, by definition, represent aspects of a company's business that are difficult or

impossible to quantify, incorporating that kind of information into a pricing evaluation can be

quite difficult.

Another business consideration for investors is competitive advantage. A company's long-term

success is driven largely by its ability to maintain a competitive advantage - and keep it.

competitive advantage gained by:

A unique competitive position

Clear tradeoffs and choices vis-à-vis competitors

Activities tailored to the company's strategy

A high degree of fit across activities (it is the activity system, not the parts, that ensure

sustainability)

A high degree of operational effectiveness

Conclusion

Investigation of the BIG4 consolidation’s impact on Auditor market share equity.

& also investigate the commonality of the Auditors of the largest 4companies in each market

The Big 4 consolidation raises concerns about the level of audit market competition.

The consolidation also corresponded to the creation of the Public Company.

Accounting Oversight Board the strengthening of independence rules that limit the

Services an audit firm can provide to an audit client.

The Big 4 consolidation should increase Concentration in the audit market, but the impact on

market share equality is less clear.

The Big 4 consolidation can produce different equality of market share outcomes.

Reference:

Dr. P. James Daniel Paul,

Professor,

VITBS, Chennai,

[email protected]

Telephone: +91 44 3993 1040

Mobile : +91 98402 94590