Majority of audits on public companies are carried out by a select few accountancy firms. These top accountancy firms are the largest accountancy firms in the world and are commonly called the Big 4.
Until 2002, the Big 4 were the Big 5 accounting firms. The firm Arthur Andersen was dropped from this list after the Enron scandal.
Arthur Andersen was Enron’s auditors and was implicated in falsifying financial records.
The Big 8 to The Big 4
Before 1987, the top accountancy firms were actually referred to as the Big 8. They were Deloitte Haskins & Sells, Arthur Andersen, Touche Ross, Price Waterhouse, Coopers & Lybrand, Peat Marwick Mitchell, Arthur Young & Co. and Ernst & Whinney.
Most of these 8 firms were the result of mergers and alliances.
Later in 1989 the Big 6 became the Big 8 with the merger of Arthur Young & Co and Ernst & Whinney to form Ernst and Young; and the merger of Touche Ross and Deloitte Haskins & Sells to form Deloitte & Touche.
In 1998, this number dropped by one to the Big 5 accounting firms when Price Waterhouse and Coopers & Lybrand to become PricewaterhouseCoopers. Then in 2002 this number shrunk again by one to the Big 4 which are:
KPMG
KPMG stands for Klynveld, Peat, Marwick and Goerdeler. The several firms that made up KPMG are William Barclay Peat & Co. which merged with Marwick Mitchell and Co. and formed Peat Marwick (PM), and Klynveld joins up with McLintock to form Klynveld Main Goerdeler (KMG. KMG and PM joined up in 1987 to become KPMG.
Ernst & Young
This firm arose as a result of the merger between the original firms Arthur Young and Ernst & Ernst. Ernst and Ernst had, before the merger with Arthur Young, merged with Whinney Smith and Whinney to form Ernst & Whinney in 1979 which made it the fourth largest accountancy firm.
Arthur Young and Ernst & Whinney merged in 1989 to form Ernst & Young.
Deloitte Touche Tohmatsu Limited
Commonly referred to as Deloitte, this firm’s lofty status resulted from a series of mergers. Deloitte Haskins & Sells merged with Deloitte in 1952 to form Deloitte Haskins & Sells. In 1975, Touche Ross joined forces with Japanese Tohmatsu Awoki and Co. Deloitte Haskins & Sells then merged with Touche Ross in 1989 to form Deloitte & Touche.
The international accounting firm adopted the name Deloitte Touch Tohmatsu in 1993. This merger did not go too smoothly and some partners in
PricewaterhouseCoopers
Coopers & Lybrand was formed in 1957 after the merger of the firms Coopers Brothers & Co., Ross Bros & Montgomery, McDonald Curie & Co. and Lybrand. In 1998 Price Waterhouse and Coopers & Lybrand merged to form PricewaterhouseCoopers.