The Overrated "Big Four"

In a report from Risk Management Magazine, a survey by Grant Thornton - the fifth largest audit firm in the US - unveils what we have always known; the hype around the importance of alignment with one of the big four is just that - hype.

. . . 67 per cent of those responding to an online survey who had "expressed a clear opinion" said it would make no difference to them if a company changed from a Big Four audit firm to another global or national firm outside of the Big Four.

And:

. . . the auditor backed it up by asking a US academic to study stock price changes over four years to announcements of a shift from either PwC, KPMG, Deloitte, EY and the former Arthur Anderson to Grant Thornton.

Dr Scott Whisenant, from the University of Houston, found "no statistically significant evidence of stock price decline in any of the announcement event windows I studied".

"These findings hold regardless of company size, including companies with sales greater than $500 million," he said.

Now clearly, the report is designed to support the audit services offered by Grant Thornton. However the underlying finding is far more broad reaching, and is in fact, nothing new. Many firms who are regarded by the big four as being 'boutique' and offering little competition, have nevertheless built their businesses through specialisation.

(The next time you are online take a look at the websites of the 'big four'. Is there anything they don't do? Realistically, do you accept that they 'lead the market' in all of these disciplines?)

These specialist firms are picking off large accounting firm clients who feel "unloved" and who are tired of the large fees; by offering better quality services at better rates.

Still, the results of these large companies are not exactly unravelling in front of them. But what is this financial performance built on? And how long will the market continue to support them in their current state?