Reading between the lines - Key observations from the 2016 International Accounting Board World Rankings
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.
BDO continues to lead the mid-tier
While BDO performed strongly over the year (see my previous post about our global results), 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 incredibly encouraging sign that our 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’s it all 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, I encourage you to take a look at the full report, available online.