Beaton is delighted to publish ‘Reading between the lines: 2016 International Accounting Rankings’, the first post from Tony Schiffmann on our blog. Since 1999 Tony has been a leader in BDO, rising from Queensland to the world. Our readers and Beaton are privileged to have access to Tony’s insightful interpretation of the global accounting industry, including the role of scale and diversification in strategy.
The International Accounting Bulletin (IAB) this week released its 2016 World Rankings and BDO has again cemented its position as the top mid-tier network, ranking at Number 5. For ease of reference, the table below provides a snapshot of network rankings by fee income.
While BDO performed strongly over the year (see Tony’s previous post), a number of networks experienced negative growth – namely KPMG, Grant Thornton International, Moore Stephens International and Mazars. In addition, BDO has extended the gap between fifth and sixth position by about $400 million over the past year. This is an encouraging sign that BDO’s member firms are executing well against our documented strategy of being a clearly differentiated firm globally.
The rankings also highlight BDO’s strength in all geographic regions, with our network leading the mid-tier rankings across all IAB World Survey regions (North America, Latin America, Europe, Africa/Middle East, Asia-Pacific), in terms of both revenue and staff.
While it’s always pleasing to see BDO perform so strongly on these metrics, as a leader in the profession I always like to take a look behind the figures. This time, I’m sharing my observations with you all as well.
The Big 4
The rankings highlight just how big the Big 4 are getting, with the two leading firms posting fees in excess of US$35 billion. PwC and Deloitte are clearly in a league of their own in this regard. In fact, Deloitte’s US practice alone achieves fee income of more than US$16 billion. Another interesting comparison regarding the performance of the Big 4 is the gap that exists between the largest and smallest of the group. There is almost a 50 per cent difference in fee income between PwC and KPMG.
When you take a closer look at the figures, it’s clear that growth for the Big 4 is predominantly coming from their advisory and consulting practice areas, while their audit offerings seem to be a diminishing portion of their overall firms. Given the size of these firms and the influence they have over the profession, trends like these reinforce questions that many in the profession have about the lack of relevance of the audit practice to the Big 4.
When the advisory practices of the Big 4 are growing so strongly – some to the point of taking up almost 50 per cent of their operations – it’s not surprising that some regulators around the world have questions around what this means for investment in the audit profession. Combine this shift in focus with increasing price pressures in the audit space and tightening regulations in a number of jurisdictions amid rising concerns around conflicts of interest, and the question around the future of audit still lingers.
Where’s the organic growth?
One key change amongst the top end of the mid-tier rankings is that RSM is now Number 6, overtaking Grant Thornton International. This is predominantly the result of Baker Tilly International’s UK firm joining the RSM fold, and highlights the impact that M&A activity is having on the profession.
It’s fair to say that there has been more M&A activity in the market over the past year than in many others, and much of the growth firms are currently experiencing is the result of this. Growth numbers across the board – both Big 4 and mid-tier – are relatively low, so one could surmise that, as a generalisation, little organic growth is occurring in the market because of the amount of competition that exists. Imagine what this means for those firms who can’t execute an effective M&A strategy or who haven’t put plans in place to ensure the successful integration of firms they have acquired?
What do these accounting rankings mean?
On the whole, reading between the lines of the latest rankings demonstrates that the industry is changing enormously and competitive pressures will continue to increase. As a leader with both domestic and international responsibilities, this is something I can certainly attest to.
Succeeding will require a clearly articulated strategy with an ability to execute against it – in good times and bad. At BDO, we’ve proven we can do this, and we are continuing to reinforce our solid platform for future growth.
If you are an IAB subscriber, you can read the full report online.
Beaton Capital is delighted to publish ‘Reading between the lines: 2016 International Accounting Board World Rankings’, an insightful contribution from Tony Schiffmann to our blog.
Since 1999 Tony has been Managing Partner for BDO’s Brisbane practice. From 2000 to 2013, he was on national board of BDO, Australia. In 2013 Tony was appointed to the BDO Global Board. You can connect with Tony on LinkedIn or email him: email@example.com.
This post was first published on LinkedIn on 5 February 2016.
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