Shape shifters: Big 4 accounting firms

It is hardly news that the Big Four accounting firms get bigger nearly every year. But where they are growing says a lot about how they will look in a decade, and the prospects worry some regulators and lawmakers.

On Sept. 19, Deloitte Touche Tohmatsu was the first to report revenue for its 2012 fiscal year, crowing of 8.6 percent growth, to $31.3 billion. Ernst & Young, PwC and KPMG will soon report their revenue (as private firms, the Big Four choose not to report profits).

For all four, Asia is a bright region. Deloitte's revenue in Asia grew by 16.3 percent in dollar terms, faster than anywhere else. This was despite long-running worries about dodgy audits of Chinese companies by Western firms.

American and Chinese regulators have argued over whether America's accounting watchdog may inspect Deloitte Shanghai's work. The two sides announced that American regulators could visit and observe but not perform their own inspections.

At all four firms, consulting has grown much faster than the audit business in recent years. In fiscal 2012 Deloitte increased its revenues from consulting by 13.5 percent and from financial advisory by 15 percent -- compared with 6.1 percent for audit and 3.9 percent for tax and legal services.

Barry Salzberg, Deloitte's boss, says he expects consulting to continue to grow by double digits, whereas the audit market is mature. Deloitte is adding consulting staff at twice the rate as employees for audits (at the end of May the firm had 193,000 people on its payroll).

If the two businesses continue to grow at the 2012 rate, the firm would do more consulting than auditing by 2017. Some lawmakers fret that consulting and tax advisory (when the Big Four are explicitly helping companies make money) can be in conflict with auditing (where the firms should take a wary, outside view of the books, in the service of investors not management).

In 2002, the Sarbanes-Oxley Act limited what kind of nonaudit services a U.S. accounting firm can offer to an audit client, but it did not forbid all of them. Bear Stearns reported paying Deloitte in 2006 not only $20.8 million for audit, but $6.3 million for other services.

The perception that auditors and clients are hand-in-glove, fair or not, is a reason why shareholders of Bear Stearns sued Deloitte along with the defunct bank. (JPMorgan and Deloitte settled in June. Deloitte paid out $20 million, denying any wrongdoing.)

Asked what would happen if people perceived Deloitte as a consulting firm with an audit business rather than the other way round, Salzberg said: "We're not going to take our eye off our professional responsibility with respect to either."