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How can mid-tier firms threaten the dominance of the Big Four?
Everyone seems concerned about competition in the audit market, but what is it about the Big Four—Deloitte, EY, KPMG, and PwC—that causes clients to turn to them time and again? Is their dominance really about a lack of competition, or are they simply better than anyone else at what they do?
We’ve just been analysing the results of our first survey of client perceptions of audit firms and there are some stark differences between the Big Four and the mid-tier—Baker Tilly, BDO, Crowe, Grant Thornton, Mazars, Nexia, and RSM. Clients tell us the Big Four can do things faster, have better subject matter experts, and can use data and analytics in the audit process much better than the mid-tier firms. Unsurprisingly, the Big Four also have a more global reach, a wider breadth of services, and greater sector knowledge and expertise.
On the other hand, mid-tier firms appear to have the upper hand when it comes to price and their ability to communicate well. They’re also seen to be better at matching the right people to audits, something that may say as much about the extent to which the Big Four’s success is leaving them stretched, and heavily reliant on bright eyed, if talented, graduates, as it does about mid-tier firms themselves.
To say this constitutes a serious threat to the dominance of the Big Four would be stretching it a bit, but it does suggest that complacency on the part of those firms would be dangerous. Finding a way to make clients feel that they’re getting the best people and that they can communicate effectively would be a good idea.
And for mid-tier firms it does suggest that there are chinks in the Big Four’s armour that can be exploited. The question is whether mid-tier firms should accentuate their differences or attempt to take on the Big Four where they’re strongest. Tempting though it may be to avoid doing the latter, we think it may be dangerous to ignore the impact of data (a perceived strength of the Big Four) in an increasingly digitised world. It will be difficult to invest in capabilities to match the Big Four, but mid-tier firms need to find a way to provide serious data analysis capabilities, perhaps through partnerships with technology companies. Get that right, and mid-tier firms could start to shake things up in ways that the regulators seem to be struggling to do.