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The Biggest Accounting Firm? Best Consult the Fine Print

It is difficult to account for accountants' differences. Two of the world's largest accounting firms apparently disagree over how they should report their own revenue, and all the glory of being No. 1 may turn on the difference.

PricewaterhouseCoopers yesterday reported $14.7 billion in revenue for the fiscal year ended June 30. Its rival, Deloitte Touche Tohmatsu, reported revenue of $15.1 billion for its fiscal year ended May 31.

But Deloitte, unlike PricewaterhouseCoopers, included in its revenue figure expenses billed to clients; if PricewaterhouseCoopers had done that, the firm said, it would have reported $16 billion in revenue, earning bragging rights.

“We've got a little revenue envy going on here,” said Paul B. W. Miller, a professor of accounting and academic director for the golf management program at the University of Colorado at Colorado Springs. “Mine is bigger than yours.”

Samuel A. DiPiazza Jr., chief executive of PricewaterhouseCoopers, said there were several reasons that the firm reported revenue as it did, including making an effort to comply with international accounting standards, which prefer that reimbursed client expenses not be included in revenue. “We have a strong and a clear stated preference of moving to international accounting standards,” he said in a telephone interview. “A majority of our revenue is outside the United States.”

Second, Mr. DiPiazza said, while generally accepted accounting principles in the United States permit inclusion of reimbursed expenses in revenue, excluding them provides a better depiction of the firm's condition because reimbursed expenses do not really reflect revenue. “Not to decide others were wrong,” he added.

A spokeswoman for Deloitte, Deborah Harrington, said that the firm had reported its revenue for the year just as it had in previous years. “We report our numbers gross,” Ms. Harrington said. “As does everybody but PWC. It's a perfectly acceptable method of accounting.”

Neither firm is publicly held and so neither is required to disclose profitability or other financial data. Indeed, the reason they do report revenue is to show clients that they are successful, stable firms, Mr. Miller, the accounting professor, said.

“I would applaud what PWC has done, because it's in the direction of more information and not less,” Mr. Miller said of the firm's decision to break out reimbursed expenses. He added that in the background for PricewaterhouseCoopers is a lawsuit in Arkansas charging that the firm, as well as other firms, did not pass on to clients savings in travel costs that it had negotiated for employees.

A spokesman for PricewaterhouseCoopers said that the litigation in Arkansas “had absolutely no bearing” on the firm's financial reporting.

Mr. DiPiazza said this was the second year that PricewaterhouseCoopers reported its revenue in this way, as part of what the firm has said is a drive for greater transparency. “We will continue to push the envelope around disclosure, because as a regulated business and as a private partnership, we think we should,” he said.

PricewaterhouseCoopers' $14.7 billion in reported revenue – that is, excluding the reimbursed expenses – reflects 6.5 percent growth from $13.8 billion, the revenue the year before. Deloitte's $15.1 billion in revenue – including the reimbursed expenses – rose nearly 21 percent, from $12.5 billion last year.

“We knew going into this that our revenue growth was going to look smaller than many of our competitors,” Mr. DiPiazza said.

Ms. Harrington of Deloitte said that the firm would not provide a revenue figure that excluded the client expenses.

Asked how then to determine which firm – each employs about 120,000 people in the United States and in affiliates worldwide – really reported greater revenue, she said, “Wouldn't it logically be if you added their numbers together?”

When told that on that basis PricewaterhouseCoopers would be larger, Ms. Harrington replied, “O.K.”

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