The Big 4’s are situated in the UK. They are PricewaterhouseCoopers (PwC), Deloitte, Ernst, and Young (EY) and Klynveld Peat Marwick Goerdeler (KPMG). These are the biggest professional services networks in the world. They are the leading players in the accountancy industry, with their service spanning advisory, audit and assurance, tax, risk consulting and management consulting, capital and transaction management.
All four firms work across a variety of industries including aerospace, automotive, banking, construction, hospitality, transportation, wealth management, media, government and public sector, private equity, manufacturing, technology, oil and energy, professional services, real estate, healthcare, and telecommunications. Before there were the Big Four Accounting Firms, for many years there was a Big Eight. These consolidations, from the 1990s through the early 2000s, reduced the Big Eight to the Big Four Accounting Firms.
PwC is the most prestigious accounting firm followed by Deloitte, EY, and KPMG.
The Big 4 has experienced significant growth in recent years. Collectively the 4 firms have over 30,000 partners. The current partners and leaders of each firm are Kevin Ellis (PwC), David Sproul (Deloitte), Steve Varley (EY) and Bill Michael ( KPMG).
In 2015, Lalit Bhasin, president of the society of Indian law firms and a representative body of over 100 law firms, filed a complaint to the Bar Council- the regulator of the legal profession stating that the Big Four Firms were resorting to UNAUTHORIZED PRACTICE OF LAW by the violation of the Advocates Act. He complained that these firms were employing law graduates and providing legal advice, drafting joint ventures and other agreements for clients, without registering themselves’s with the Bar Council of India. According to Bhasin’s complaint, it meant that the Big Four audit firms were also engaged in Law practice, which is not legally permissible in India.
Former CA Institute President Naveen Gupta said that one should see whether the Bar Council has the power to pass such orders to the CA firms. He feels that it is an encroachment into ICAI’s ( Institute of Chartered Accountants in India) as the Big four Multinational Accountancy Firms are governed by the ICAI. Hence, ICAI should realize that it has been ineffective in being able to discharge this Solemn Function.
In India, legal notices have been issued to the domestic arms of the Big Four, for hiring lawyers and operating surrogate law firms.
Acting on Charges of surrogate law practice, the Bar Council of Delhi has directed the Big Four Multinational Companies- PwC, Deloitte, EY, and KPMG to refrain from providing legal services with immediate effect until further orders. The firms have also been asked to furnish a list of all the advocates who have been engaged by them in any capacity, in any of their office or place.
The council has asked all the Four Firms to represent their views on the issue. Industry insiders said Indian law firms were first wary of foreign law firms entering the country, but that view has mellowed as many large law firms are now open to foreign investment. Lately, new firms have entered the market largely dominated by the Big Four firms offering multidisciplinary practices such as forensic operations, undertaking commercial diligence and investigation for their clients. While the Big Four Firms continue to work on smaller margins but law firms have a comparatively smaller top line but huge profits.
For Indian firms to evolve as the global leader’s in auditing, legal consultancy, and ancillary services, it is necessary to rationalize the Advocate Act, 1961 to facilitate the development of Indian audit firms as well as legal firms. The Indian affiliates on the Big Four for hiring lawyers to provide low-value legal documentation work for which legal firms charge more.
Among the Big Four, PwC has been banned for 2 years. Deloitte and KPMG groups audit more than 250 companies that are 40% of the market capitalization of the listed Indian companies. Incase a ban on them is imposed like on PWC, there won’t be enough quality audit firms left that companies can seek in their place. The regulators faced a dilemma because Big Four has practically become too big to fail. The problem here is compounded when an emerging market like India wants to attract more global investments, the Big 4 provides comfort to the investors. Indian audit firms have tried unsuccessfully to fight the growing dominance of the bigger firms and have even proposed joint audits as a solution.
A while ago, the Indian Prime Minister had voiced concerns about the hegemony of the Big Four and an absence of the level playing field. The corporate affairs ministry subsequently set up a committee to look into the matter. The ICAI also came out for supporting local auditors. PM Modi at the time of launching GST said that he wished Indian Firms could make a place for themselves for the world’s top auditors. PM rightly understood that there were no Indian firms compared to the MultiNational auditors. This imbalance needs to be corrected by creating four big Indian Audit firms.
The Issue has to be understood entirely. The whole system has to be revamped. Serious reforms are needed in terms of how governance structures are implemented in the company. The Big Four needs to reorient its structure. The focus should be on excellence, not on revenue or profits.
The audit firms are stopped and fined from taking any new audits. The Indian firms have not been performing extraordinarily which is a matter of concern for our economy.
By Alifiya Morawala ( Sophia College)- B.A. Economics
Literary Sources- hindubusinessline.com