The Big 4 Break Up: A New Era of Specialized Services

In a historic move that could reshape the global accounting landscape, one or more of the Big 4 accounting firms – Deloitte, EY, KPMG, and PwC – may announce a significant divestiture of their core accounting businesses from their consulting and other professional services. This strategic shift, driven by increasing regulatory scrutiny, client demands for specialized expertise, and internal pressures, could mark the end of the traditional, monolithic model that has dominated the industry for decades.

The seeds of this potential disruption were sown by EY’s failed Project Everest in 2018, an ambitious plan to separate its consulting arm from its audit practice. While the project ultimately fell through, it highlighted the inherent tensions between these two distinct business lines. Consulting services, with their higher profit margins and growth potential, often clash with the more risk-averse and regulated nature of traditional auditing.

Recent years have seen the Big 4 firms come under intense scrutiny for their roles in high-profile scandals. EY, for instance, faced significant backlash for its involvement with the German payments company Wirecard in 2021. The firm was accused of failing to identify and report fraudulent activities, leading to a major corporate collapse and a loss of billions of euros for investors.

Similarly, KPMG has been embroiled in controversies, including its role in the collapse of the UK construction giant Carillion in 2018. The firm was criticized for its audits of Carillion's financial statements, which failed to highlight the company's deteriorating financial health.

In addition to these high-profile scandals, the Big 4 firms have also faced scrutiny for ethical lapses among their staff. Recent reports have revealed instances of employees cheating on mandatory training courses, raising concerns about the quality of their professional development and their commitment to ethical standards.

As regulators tighten their grip and public trust in the profession erodes, the Big 4 firms may find it increasingly difficult to maintain their current business models. A potential divestiture could allow them to focus on their core competencies, reduce conflicts of interest, and enhance their reputation. However, it could also lead to higher costs for clients and increased competition in the market.