In the past I’ve written about the Big Four business consulting firms (Deloitte, PwC, EY and KPMG) starting to nudge into the agency world by adding marketing strategy work to the menu of services they offer. There’s no doubt consulting is big business these days because companies are looking for experts to help navigate the increasingly complex business landscape. But there’s a problem with the consultancies’ hyper growth – a potential conflict of interest with their own legacy.
What many people don’t realize is the Big Four all started as accounting firms which built thriving businesses audit practices. Auditing is the sleepy but important bean counting process all public companies must go through to insure investors that their books are clean. While auditing is still a large part of the Big Fours’ business, you can see in the chart below that consulting work has actually become the leading revenue driver for these firms. This sets up a potential conflict of interest in which they could be auditing the books of the same companies they’re providing consulting work for. In this scenario the auditors might be under pressure to give their clients a clean bill of health so it doesn’t reflect badly on their own consulting work.
The chances of this happening in the US are less likely. After the Enron collapse in 2001 the Sarbanes-Oxley Act was passed to ban this exact kind of double dipping. But the legislation only bans consultancies from doing both audit and consulting work for the same company in the US. These firms can still provide both services abroad and also do consulting work stateside while doing audit work for the same client in another country. All of this sets up a fuzzy line for the Big Four as they ramp up their consulting practices while still running an audit biz.