Steve Barley CPA, Big4.com Guest Blogger
I’ve got more experience than I’m comfortable admitting-three years of Big 4, six years of Fortune 100 accounting and audit, then 25 or so years as a serial entrepreneur in the financial staffing industry. So, I’ve been all around the Big 4 for 35 or so years as an employee, a client, a vendor, an advisor and now a blogger. So I think I’m probably somewhat of an expert on manifestations of change in the Big 4 culture.
One thing most everyone agrees on is the dramatic impact of technology, regulation and litigation on the public accounting profession. The up or out culture that exists within Big 4 firms also applies in the business environment where those firms operate. Big 4 staff members cannot be faulted for believing they face unprecedented challenges in their daily work. The push to be better and faster, but price competitive, creates a culture of constant change. Not all the change has been positive. I recently read a Wall Street Journal article that severely criticized the accounting profession’s current culture.
“Over the last five years, the staid accounting profession has been transformed into a Darwinian jungle. The major accounting firms are reeling from a sharp rise in competition, shrinking audit business in the wake of client mergers, waves of litigation from disgruntled clients, and unprecedented layoffs and partner defections. Those who remain are finding that the law of survival of the fittest prevails over generally accepted behavioral principles.”
The accounting profession, especially the Big 4, has certainly had its share of tumultuous change during the past couple of decades. After a relatively quiet half century as the Big 8, then #4 Ernst & Young and #5 Arthur Young merged in 1989. This was quickly followed by the merger of Deloitte and Touche Ross to form the Big 6. This combined with the real estate driven recession of the late 80s – early 90s, which produced a blizzard of bank failures and mergers, created a very volatile period for CPAs.
In 1997, KPMG and Ernst & Young announced a merger that would create the largest accounting firm ever. But, it was never realized as regulators tied it up too long. In 1998 though, a Price Waterhouse and Coopers & Lybrand merger was quickly approved forming the Big 5.
Storm clouds were gathering as the 1990’s came to a close. As the Big 5’s consulting practices grew (sometimes consulting fees were exceeding audit fees) ethical issues started to arise as auditors sometimes found themselves reviewing their own firm’s work. Arthur Anderson created a separate consulting division in 1989 then completely divested the business creating Accenture in 2000. Then a series of accounting scandals in the early 2000s culminated in Arthur Anderson going out of business. This sent thousands of AA employees scurrying to secure employment. Whole practice groups and offices were quickly gobbled up by other large firms leaving AA an empty shell and creating the Big 4.
In response to accounting scandals, the 2002 Sarbanes Oxley Act (SOX), sometimes called the accountant’s full employment act, required a significant overhaul of audit methodology. SOX required management and external auditors to report on the adequacy of the company’s internal control system for financial reporting. SOX implementation was very costly as documenting and testing financial controls to the extent necessary to issue opinions on internal control required enormous additional effort .
The great recession of 2008-2009 brought more pressure on the profession as scapegoats were sought for Wall Street failures, investment scandals and burst real estate bubbles. CPA firms and their partners were being held ever more liable for public firm failures.
While life in the Big 4 in the 2010s may seem more challenging than ever, it’s good to study history for perspective. The recessions of 1974, 1982, 1990, 2000 and 2008 all created challenging work environments for Big 4 staffers. CPAs in all of these eras had good reason to believe they were being asked to do more work in less time than their predecessors. I remember living through each of these and thinking “the accounting world has changed and will never be the same again.”
The WSJ article referenced earlier would lead one to believe the profession is on the verge of calamity. That article was in the July 24,1991 WSJ edition. The article went on to state “the profession’s crisis is playing havoc with accountants’ lives…who have become so anxiety ridden their health is in peril.” Little did the author know of the mergers, scandals and regulatory crises that lie ahead.
Steve Barley CPA started his accounting career with Touche Ross in 1973 and has spent his entire career in and around Big 8,6,5,4 firms. Currently he is developing a job posting site for accountants at http://www.CPAstaffing.com. Follow on Twitter @CPAstaffing.