Big 4 vs. Local Audit Firms: A Comprehensive Comparison

The assignment discusses the differences between local audit firms and big four auditing firms. It highlights that while local firms may have knowledge of laws and regulations governing their specific region, they may lack expertise in other regions. In contrast, big four firms operate globally and have uniform procedures and documentation across all continents, making it easier to conduct audits efficiently. However, the assignment also notes that big four firms may not be suitable for small or local companies with limited data management systems, as they require detailed information and may create friction with middle-level management. Ultimately, the choice between a local audit firm and a big four firm depends on the company's specific needs and operations.

BIG 4 Vs. Local Audit Firms

Big 4 vs local audit firms Page | 1
Market share of Big 4 in terms of revenue
The combined revenue of Big 4s in the entire world considered together is around $125
Billion as of 2014 (theBig4, 2014). Among the big fours, Deloitte and Price Water house
coopers are a close number one and two and keep interchanging positions. EY comes at a
distant number three while KPMG comes at distant number four. In terms of geographic
market share, the firms hold around 50% market share which is huge as this is worldwide
market share. In some countries, big 4 hold up to 80% of the market share which in itself is a
staggering figure (Slideshare, (n.d.))
The data above mentioned clearly indicates that the big 4 have dominated in the
markets in the entire world. Looking at this data other way around also suggests that the all
the companies and clients prefer to go to big 4 for their statutory and consulting needs. This is
the reason that the big 4 are growing at a rapid pace and dominating the market in terms of
number of clients and in terms of revenue in the entire world. The very obvious question that
arises is that whether the market domination by the big 4 is good for the auditing field in
particular and the consulting field in general. This could be studied by studying the methods
of audit adopted by the big 4 and the strategy of auditing applied at the client.
The big 4s follow a very rigorous audit strategy and are uniform in there market
approach. The methods and the documentation which are used in say Australia will be used in
United Kingdom and in Canada as well. The softwares used in the documentation processes
are uniform in all the countries which give a level of comfort to the client which are operating
cross borders. Needless to say that documentation if required by law of a specific country is
followed accordingly. However, with the local firms or mid-sized firms, this cannot be
achieved as the cost of implementation of softwares and cost of employees of running the
same cannot be achieved by such firms. Therefore, the main reason of big companies going

Big 4 vs local audit firms Page | 2
for big 4 is that the audit process and documentation in all the countries in which the
company is operating is uniform which is a huge level of comfort for such companies.
Again, the mid-sized firms have low level of infrastructure and are generally
understaffed as the employee turnover ratio is quite high. This sometimes may lead to lag of
services on their part. As it is a well-known fact that the field of audit is ever evolving and
with the change in laws, the method and the level of checking also changes. The big 4 are
able to maintain a separate branch which studies the updates and are able to provide the
employees with the details that help them to understand the updates in a practical manner
which ultimately serves in the purpose of serving the client better and getting the audit done
in a hassle free manner. However, having said that, it may not be ignored that there is huge
amount of work pressure in big 4 which leads to high level of employee rotation their also.
But due to huge level of documentation involved post audit procedures, the big 4s are able to
maintain a smooth transition as all the information is available in the softwares which makes
the firm independent of employees and help in maintaining a level of comfort.
For the clients who are working in the multi-location, the possibility of audit being
done by local firms is a difficult task. Even though the big 4 charge a lot of fees, but they are
able to justify that fees as the amount of work they put into serving the client is also
exceptional. The clients who are working at multiple places cannot hire audit firms as this
would lead to duplication at all the levels of work and this may take a lot of time and effort
for the middle level management to get the audit done. This becomes essential for the
company to hire the services of big 4s as these are present virtually everywhere and have very
good level of communication network due to which the clients are able to focus on their work
and do not have to donate much time and effort in the audit procedures. Rather, the focus of
the client is shifted on how to get the audit done by providing the essential data for the
completion of audit. In these cases, when the company hires a smaller firm or the local firm,

Big 4 vs local audit firms Page | 3
the audit completion in itself may become difficult as the firm may not even have that level
of experience on how to handle a multibillion dollar client which makes the task of audit
more difficult. This can be understood with the help of an example – let’s say there is
company of cement manufacturing which has operation in Africa, South East Asia and China.
Now, the company hires a local audit firm based out of China. In this case, the firm may have
the level of knowledge required to conduct audit in China but will not have knowledge of
laws and regulations governing the cement sector in Africa or South East Asia. For this
purpose, the either the company or the audit firm will hire the local audit firms operating in
these areas. Due to lack of infrastructure and the level of communication network, the firm
may not be able to conduct the audit very smoothly which may lead to lag in audit quality or
the timing of the audit may extend. However, if the same company hires one of the big 4s,
then the company need not worry about the audit completion as single contract would suffice
for the big 4. The big4s will then contact the counterparts of that area and get the audit done.
As already mentioned above, the problem of communication and audit procedures will not
arise as the audit methods and documentation is uniform in all the continents big4s operate
which will lead to a successful audit assignment.
In terms of experience, the local firms may not carry that much level of experience as
is required to handle the client of such large scale in terms of operations and volume (Harris,
2015). The exposure which the firm of such level receive is mostly local and operating in a
different country may not be that fruitful for the local firms. It may also be kept in mind that
the local firms or the mid-sized have a single or few partners which make it very difficult for
them a have expertise in all the areas of auditing. This can be understood with the help of an
example. Suppose, there is company in the telecom sector which have operations let’s say in
Africa and South East Asia. The telecom sector is heavily governed by the governments in all
the countries due to heavy interest of public involved. Now, if the company hires a local firm

Big 4 vs local audit firms Page | 4
which operates let’s say only in Africa, then it may not be able to fully absorb the laws and
regulation of that country and thus, may not be able to handle the assignment with that level
of expertise as is required. This may lead to time wastage and in some cases may even
compromise the integrity of the audit done. This could become very serious sometimes.
Having presented the above arguments, it must also be understood that for the
companies which may be large but have operations only in local areas it may not be always
suitable for them to hire big4 (Janjic, 2014). The reason for this is that the big 4s operate on a
single longitude and single latitude audit strategy. They do not bend their internal
documentation requirements and are always keen on having a detailed view of all the areas
which may be required by their software. However, when it comes to these companies, they
may have all the data with themselves but may not be able to provide all the details from
their softwares as these companies generally do not work on sophisticated softwares and may
maintain their data in excel sheets which may be protected by passwords. Thus, if the big 4s
follow the entire regulations laid in their audit processes, then this would lead to a conflict
between the middle level management and the auditor due to data availability and the extent
of checking which may and seldom creates friction in the audit. Also, it must be noted that
the client in these organisation have multiple roles and have multiple tasks which also make it
very difficult for them to attend to every need of the auditor. However, at the same place, the
local firms may bend the documentation requirement as per client comfort. They may not
compromise on the audit credibility but may reach a suitable level of understanding where the
client will provide the required data but in the format of his own comfort for the successful
completion of audit.

Big 4 vs local audit firms Page | 5
References
theBig4.com, 2014. The 2014 Big Four Firms Performance Analysis. [Online] Available at
http://www.big4.com/wp-content/uploads/2015/01/The-2014-Big-Four-Firms-
Performance-Analysis-Big4.com-Jan-2015.pdf [Access Date 24th August, 2016]
Slideshare, (n.d.). Market Analysis of Big 4 Auditing Firms. [Online] Available at
http://www.slideshare.net/hayagreevangp/market-analysis-of-big-4-auditing-firms
[Access Date 24th August, 2016]
Harris, Z., 2015. My Experience at a Big Four Firm vs. a Regional Firm. [Online] Available
at http://www.kmco.com/careers-blog/my-experience-at-a-big-four-firm-vs-a-
regional-firm/ [Access Date 24th August, 2016]
Janjic, R., 2014. Five Questions a Small Compnay Should Answer Before Hiring An
Executive From A Large Company. [Online] Available at
http://www.heidrick.com/Knowledge-Center/Article/Five-Questions-a-Small-
Company-Should-Answer-Before-Hiring-an-Executive-from-a-Large-Company
[Access Date 24th August, 2016].