Report | Big 4 Vs Local Audit Firms

Added on - 22 Sep 2019

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BIG 4 Vs. Local AuditFirms
Big 4 vs local audit firmsPage |1Market share of Big 4 in terms of revenueThe combined revenue of Big 4s in the entire world considered together is around $125Billion as of 2014 (theBig4, 2014). Among the big fours, Deloitte and Price Water housecoopers are a close number one and two and keep interchanging positions. EY comes at adistant number three while KPMG comes at distant number four. In terms of geographicmarket share, the firms hold around 50% market share which is huge as this is worldwidemarket share. In some countries, big 4 hold up to 80% of the market share which in itself is astaggering figure (Slideshare, (n.d.))The data above mentioned clearly indicates that the big 4 have dominated in themarkets in the entire world. Looking at this data other way around also suggests that the allthe companies and clients prefer to go to big 4 for their statutory and consulting needs. This isthe reason that the big 4 are growing at a rapid pace and dominating the market in terms ofnumber of clients and in terms of revenue in the entire world. The very obvious question thatarises is that whether the market domination by the big 4 is good for the auditing field inparticular and the consulting field in general. This could be studied by studying the methodsof audit adopted by the big 4 and the strategy of auditing applied at the client.Domination of Big 4 & whether it is good for the auditing field -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 UnitedKingdom and in Canada as well. The softwares used in the documentation processes areuniform in all the countries which give a level of comfort to the client which are operatingcross borders. Needless to say that documentation if required by law of a specific country isfollowed accordingly. However, with the local firms or mid-sized firms, this cannot beachieved as the cost of implementation of softwares and cost of employees of running the
Big 4 vs local audit firmsPage |2same cannot be achieved by such firms. Therefore, the main reason of big companies goingfor big 4 is that the audit process and documentation in all the countries in which thecompany 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 generallyunderstaffed as the employee turnover ratio is quite high. This sometimes may lead to lag ofservices on their part. As it is a well-known fact that the field of audit is ever evolving andwith the change in laws, the method and the level of checking also changes. The big 4 areable to maintain a separate branch which studies the updates and are able to provide theemployees with the details that help them to understand the updates in a practical mannerwhich ultimately serves in the purpose of serving the client better and getting the audit donein a hassle free manner. However, having said that, it may not be ignored that there is hugeamount 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 tomaintain a smooth transition as all the information is available in the softwares which makesthe firm independent of employees and help in maintaining a level of comfort.Thedomination of big 4from the above can be seen that is good for the MNC andlarge companies as the services become more refined. The competition in the market amongthe big 4 and the other middle size and large firms are able to generate good quality of workamong the audit firms leading to better client service. Let us study this in details below -For the clients who are working in the multi-location, the possibility of audit beingdone by local firms is a difficult task. Even though the big 4 charge a lot of fees, but they areable to justify that fees as the amount of work they put into serving the client is alsoexceptional. The clients who are working at multiple places cannot hire audit firms as thiswould lead to duplication at all the levels of work and this may take a lot of time and effort
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