The accounting industry experienced its slowest growth in a decade, according to the latest revenue figures from the Big Four firms, although it is still unclear how much rising business from defunct Arthur Andersen's former clients will improve the remaining firms' outlooks.
KPMG International, the world's third-largest accounting firm, yesterday reported $10.72 billion in revenue for the year ended Sept. 30, up 3.9 percent from the previous year. That's the slowest rate of revenue growth for KPMG since 1994, when it reported a 1.7 percent revenue increase, said Arthur Bowman, editor of Bowman's Accounting Report.
The relatively lackluster results reflect the uncertain position of the accounting profession after corporate financial scandals led Congress to create an oversight board for the industry and to ban accounting firms from providing certain consulting services to their audit clients. Firms are rethinking their business strategies in the wake of the new law and of criticism that the industry's aggressive cross-selling of services that fattened the firms' bottom lines may also have weakened their resolve to prevent and report accounting fraud.
KPMG didn't lag significantly behind its peers, which are all doing only slightly better than they did during the recession of the early 1990s.
For the year ended June 30, Ernst & Young International reported a 2.7 percent rise in annual revenue, to $10.1 billion. PricewaterhouseCoopers said its revenue grew 1 percent, to $13.8 billion. Excluding business from Deloitte Consulting, Deloitte Touche Tohmatsu annual revenue jumped 4.5 percent, officials said, although the company did not release a dollar figure. Global revenue, including consulting fees, grew 2.5 percent, to $12.5 billion, for the year ended May 31.
KPMG's figures exclude revenue from consulting businesses that were spun off this past year.
“Nobody's lighting the house on fire,” Bowman said. “It's slow growth, but it's growth.”
KPMG's revenue from its audit division grew 3.4 percent, to $6.33 billion. Audit fees, charged by the hour, have increased since the recent accounting reform legislation stiffened penalties for manipulating financial records and mandated more rigorous audits. But although industry observers had speculated during the summer that audit prices might rise as much as 50 percent and perhaps offset lost consulting fees, experts now believe standard audit fees may increase only by 15 to 20 percent.
At Ernst & Young, audit services revenue rose 3 percent. PricewaterhouseCoopers reported a 1 percent increase. Deloitte does not break down its revenue by practice area.
All of the major firms are private partnerships, so there is little detailed public information about their finances. For that reason, it is difficult to assess what effect the past year's scandals and new corporate governance laws have had on audit revenue in the United States. None of the firms categorize revenue by practice area within geographic regions. But overall business in the Americas was weak for the firms.
KPMG's revenue in North and South America fell 0.9 percent, to $4.27 billion, and PricewaterhouseCoopers' revenue in the Americas dropped 4 percent, to $5.17 billion. Ernst & Young and Deloitte Touche do not disclose revenue by region.
It will be a year or more before the fallout from the imploded Arthur Andersen settles and the company's former clients begin forging long-term relationships with their new auditors, said Bowman and the accounting firms' spokesmen.
Ernst & Young, however, estimates that if it had included its Arthur Andersen business in its figures, its revenue would have grown to as much as $12.5 billion, instead of $10.1 billion. The Andersen practices did not officially merge with Ernst & Young until after the end of this fiscal year, so they will boost next year's results.
Arthur Andersen practices in 57 countries, employing 25,000 people, joined Ernst & Young after the failure of their firm. Deloitte took on Andersen practices from 20 countries, representing a workforce of 23,000. Before Arthur Andersen's role in the Enron Corp. accounting scandal came to light, the firm had offices in 83 countries.