Auditing the audit industry: The past, present and future of the big-4 in India

Abstract

The consolidation of the audit industry globally that gave rise to the "Big-4" has always been a topic of interest because, unlike prior consolidations, it was not purely a result of mergers. In the 1980s, the "Big-8" accounting and auditing firms, despite having differences in specialisations, prevailed the audit industry. The Big-8 reduced to form the Big-6 with the two historical mergers of Ernst & Whinney with Arthur Young to form Ernst & Young; and Deloitte, Haskins & Sells with Touche Ross to form Deloitte Touche in 1989. The primary driver of these mergers was the tendency of large clients to stay with the merged firms, thus increasing the merged firm's dominance in the industry. Following suit, Price Waterhouse merged with Coopers & Lybrand to form PricewaterhouseCoopers, PwC, and thus emerged the "Big-5" in '98. The 2002 Enron scandal that resulted in the loss of over 70 billion USD was a milestone in the history of auditing, with one of the largest bankruptcy filings to have ever been seen. Multiple lawsuits ensued, implicating Arthur Anderson, one of the Big 5. Eventually, they were convicted for obstruction of justice and shredding evidence related to the scandal resulting in their subsequent dissolution. And then there were 4. (Exhibit 1) At face value, these were the overt causes for the emergence of the Big 4. But what made them sustain their dominance and expand internationally? The industry forces, nature of auditing and exponential growth of globalization all have a nuanced role to play -