The Big Four Overrated or Overhyped?

ETF Research & Analytics Team

ETF Research & Analytics | A function of the ETF corporate think tank.

When it comes to the world of audit and consulting, the Big Four – Deloitte, PwC, EY, and KPMG – have long been seen as the "creme de la creme." They are widely renowned for their expertise, reach, and prestige. However, there's an increasing sentiment that these firms may be more overrated than they are deserving of their acclaim. This view is borne out of a few key factors, including their monopolistic grip on the audit market, a string of high-profile audit failures, and a lack of true innovation.

Firstly, it's worth considering the Big Four's stranglehold on the audit market. They audit 99% of the companies in the FTSE 100 and a similar proportion in the S&P 500. This dominance stifles competition and may be detrimental to the quality of audits, as there are fewer firms able to challenge their methodologies and practices. Moreover, this dominance can create a sense of complacency, which can lead to subpar performance and audit failures.

Which brings us to the second point: the alarming string of high-profile audit failures by these firms. From the collapse of Carillion, audited by KPMG, to the scandal at Wirecard, audited by EY, the Big Four's track record has been significantly tarnished. These incidents raise valid concerns about the reliability and thoroughness of their audits. If these firms, with their vast resources and supposed expertise, can miss such enormous irregularities, how much confidence can we have in their audit quality?

Innovation, or rather the lack of it, is another area where the Big Four seem to fall short. Despite their size and resources, there's a sense that these firms are lagging behind smaller, more agile competitors when it comes to incorporating new technologies and methods into their practices. They are often seen as behemoths, slow to change and innovate. This lack of innovation can hamper their ability to provide the best services to their clients, especially in an era where technology and data analysis are becoming increasingly important in the audit and consulting sector.

Finally, there is the issue of conflicts of interest. The Big Four are multi-disciplinary firms, offering a range of services besides auditing, such as consulting, tax advice, and more. This gives rise to potential conflicts of interest, which can compromise the independence and integrity of their audits.

In conclusion, while the Big Four undoubtedly have their strengths, it's time to re-evaluate the narrative surrounding them. They are not invincible titans, but corporations that have their own significant flaws and challenges. Their overrated status is a reminder of the need for greater market competition, improved audit quality, and more innovation in the sector. By holding them accountable and encouraging a more diversified market, we can strive towards a more effective and reliable audit industry.