Resurgence in Big 8

                                      Big 8 Redux

There’s a short table in an article titled “Back to the Big Eight?"  in the September 2007 issue of CFO Magazine (www.cfo.com ).  This table (see below) identifies the eight largest accounting firms by revenue in 2001 and 2006.  It also shows the number of professionals and SEC clients each firm has. 

I did some additional calculations off of the data within this table on a separate spreadsheet.  I noticed that the:

§         number of professionals within the top eight firms has declined in the last four years.  Specifically, there were only 84,384 professionals in the Big 8 in 2006 yet there were 108,948 professionals in largest eight firms in 2001.

§         revenue per professional has increased by almost 20% during that same time frame. Revenue per professional has grown from $259,349 per person to $311,917 per person.  While this could be due to inflation, this increase could also point to reduced competition and larger fee/client arrangements, possibly driven by increased compliance costs.

§         number of SEC clients has declined from 13,617 to 7,302 in these same five years.  This represents a significant reduction in the number of publicly traded firms.  Some of this reduction may be due to mergers, acquisitions and business failures (resulting in de-listings). However, many firms have chosen to go private rather than subject themselves to the added cost and trouble of new reporting regulations like Sarbanes-Oxley.

All in all, though, it is good to see the profession financially healthy and that its smaller brethren are growing. For there to be choice, competition and healthy innovation in the industry, a balanced group of large competitors will benefit all users of these services. Buyers of these services should question though the real value they get from an audit staffer billing out 3-6+ times their fully burdened cost though. I’m not convinced that true value is accruing to the clients and that these costs are appropriate. They may be market-driven and scarce at the moment but are they really providing value and does this value go beyond the amount billed?

I also think we need to examine why the number of professionals in this industry has dropped by approximately 24,000 individuals within the Big 8.  If this is a problem due to the lack of recent college graduates entering the profession, then clearly the industry is not doing enough to educate students and prospective graduates of the appeal and opportunities available in public accounting.  Alternatively, work-life balance concerns of recruits (a problem that has dogged industries such as public accounting or systems integration) may not be getting the attention it deserves inside these firms and this is keeping headcount down.  If so, then this is a signal that more public accounting firms need to adopt policies like the Booz Allen Hamilton 5 -- 4 -- 3 -- 2 -- 1 program. Or, maybe college students see the post-Enron world of public accounting as just unappealing. Whatever the cause, the industry may need a PR makeover.