Big Four

Definition

The term Big Four is used in two primary contexts:

1. Accounting: Refers to the four largest international CPA firms:

   • Deloitte
   • Ernst & Young (EY)
   • KPMG
   • PricewaterhouseCoopers (PwC)

   These firms dominate the market for audit and assurance, consulting, tax, and legal services for public companies around the globe. They serve a multitude of Fortune500 companies and multinational corporations, offering services not merely confined to accounting but extending to various advisory and risk management services.

2. UK Commercial Banks: Refers to the biggest high-street banks in the United Kingdom:

   • Barclays (incorporating Woolwich)
   • Lloyds Banking Group
   • HSBC (formerly Midland)
   • Royal Bank of Scotland Group (incorporating NatWest)

   During the 1990s, this group expanded to include Abbey National (now part of Santander) and Halifax (now HBOS and a subsidiary of Lloyds) following their transformation from building societies to banks.

Examples

1. Accounting Firms:

   • Deloitte is known for its extensive advisory services as well as audit and assurance.
   • EY has a strong presence in tax consultancy and transaction advisory.
   • KPMG offers specialized services in auditing, but is heavily involved in the advisory and consulting sector as well.
   • PwC integrates a range of services, including strategy consultancy through its acquisition of Booz & Company.

2. UK Commercial Banks:

   • HSBC is an international banking giant with offices worldwide, known for retail banking and wealth management.
   • Barclays emphasizes investment banking and wealth management services.
   • Lloyds Bank has a strong footprint in the retail banking sector in the UK.
   • Royal Bank of Scotland provides wide-ranging financial services including personal banking, business banking, private banking, insurance, and corporate finance.

Frequently Asked Questions (FAQs):

1. What services do the Big Four accounting firms provide?

   • The Big Four accountancy firms provide auditing, tax consultancy, advisory services, assurance, risk management, transaction advisory, legal services, and majorly contribute to strategic consultancy.

2. Why are these firms called the Big Four?

   • They dominate the global market for professional accounting services due to their size, scope, broad service offerings, and international presence, making them significantly larger than other firms.

3. How did the term ‘Big Four’ originate in the banking sector?

   • In banking, the term refers to the large, well-established financial institutions that dominate the UK’s high-street banking scene, indicative of their market share, customer base, financial strength, and historical presence.

4. What other names were included in the Big Four of UK banking in the 1990s?

   • Abbey National and Halifax, which transformed from building societies to banks and later integrated into larger banking groups.

5. Why do public companies prefer using Big Four firms for audits?

   • Public companies prefer Big Four firms for their extensive resources, global reach, specialized industry expertise, and the perception of credibility and reliability in financial reporting.

Related Terms

• CPA (Certified Public Accountant): A designation given to qualified accountants that is recognized in the United States and signifies a high standard of competence.
• Management Consultancy: Advisory services provided to businesses aimed at improving their processes, efficiencies, and overall strategies.
• Building Societies: Financial institutions primarily concerned with originating mortgage loans and accepting savings accounts; some have converted to banks.
• Market Capitalization: The total value of a company’s shares of stock, used to determine company size in the market.

Online References:

• Deloitte Official Site
• Ernst & Young (EY) Official Site
• KPMG Official Site
• PricewaterhouseCoopers (PwC) Official Site

Recommended Books for Further Reading:

• The Big Four: A Study of Opacity in Financial Reporting by Ian D. Gow and Stuart Kells
• Managing the Professional Service Firm by David H. Maister
• Audit and Assurance Services: An Integrated Approach by Alvin A. Arens, Randal J. Elder, Mark S. Beasley

Accounting Basics: “Big Four” Fundamentals Quiz

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