Pwc

Introduction

PricewaterhouseCoopers (PwC)is the world’s largest accounting firm and ranks as one of the giants in the global professional services arena. PwC employs over 146,000 people with 766 offices in 150 countries. The Firm is led by Samuel A. DiPiazza, CEO, and is headquartered in New York City on Madison Avenue. Its clients include 84 percent of the Fortune Global 500 companies. Price Waterhouse and Coopers & Lybrand merged in 1998, which made the combined firm the top player in public accounting. In the 2007 fiscal year, PwC had gross revenue of over $25 billion. Structured as a limited liability partnership (LLP), the private company would rank in the low 300s on the Fortune 500 companies.

History of PricewaterhouseCoopers

Although many think of the firm as American, its origins can be traced to the United Kingdom. Price Waterhouse’s beginning started in 1849 when Samuel Lowell Price opened his accounting practice in London. In 1865, Price joined forces with fellow Brits, Holyland and Waterhouse. They renamed the firm Price Waterhouse & Co. Similarly, Coopers& Lybrand started in the United Kingdom, when William Cooper opened his firm in 1854; it was later known as Cooper Brothers. In 1957, three firms, Cooper Brothers (U.K.), McDonald, Currie, & Co. (Canada), and Lybrand, Ross Brothers, & Montgomery (U.S.) merged to form Coopers & Lybrand. Price Waterhouse and Coopers & Lybrand were both extremely successful from the 1960s through the 1980s, adding to their menu of services and expanding internationally. In the early 1990s, a wave of consolidation in the professional services industry driven by potential synergies and economies of scale led to the merger of Price Waterhouse and Coopers & Lybrand. Thus, PricewaterhouseCoopers was born.

From “Big Eight” to” Big Four”

Along with PwC, the other global dominant accounting firms include Deloitte Touche Tomatsu, Ernst & Young, and KPMG. Collectively, they are known as the “Big Four.” When combined, their 2007 revenues exceeded $89 billion. This group was once part of the “Big Eight” before a series of mergers and acquisitions. Arthur Anderson was among the “Big Eight” and was considered an innovator among the firms because of its specialized consulting practice. In the wake of the 2001 Enron scandal, Arthur Anderson was liquidated after most of the firm’s management was convicted of obstruction of justice. Other firms that were formerly members of the “Big Eight” merged. Ernst & Whinney combined with Arthur Young to create Ernst & Young. Deloitte, Haskins, & Sells joined with Touche Ross to form Deloitte & Touche (Deloitte). In addition, the Peat Marwick firm had previously consolidated with KMG Group to create KPMG. These mergers are what led to the “Big Four.” Today, the “Big Four” perform the majority of the audits for publicly traded companies.

Effects of a Changing Industry

Ranked by 2007 revenue, PwC was number one with $25.2 billion. The others trailed PwC with Deliotte at $23.1 billion, Ernst & Young at $21.1 billion, and KPMG at $19.8 billion, respectively. In terms of service lines, advisory and consulting services for all four firms combined grew 21.7 percent, from $18 billion to $21.9 billion. Tax services expanded by 18.4 percent, from $17.6 billion to $20.8 billion. Audit and assurance services, grew at the slowest pace with combined “Big Four” revenues growing 12.9 percent, from $42.1 billion to $47.5 billion. Although audit and assurance services represent over half of the firms’ revenue, advisory, consulting, and tax services may soon overtake them.

Additionally, the firms capitalized on more stringent financial reporting and internal control requirements that were products of the new Sarbanes Oxley legislation. Furthermore, the firms benefited from the strong initial public offering (IPO) market, private equity buyouts, complex mergers and acquisitions, and increased risk management. Globally, growth in 2007 was the strongest in the Asian market, specifically in China and India. Also, the European region was the largest revenue producer for all of the “Big Four.”

The Competing “Big Four”

The “Big Four” compete fiercely for professionals and clients. Recruiting is a critical part of their continued growth and success. These firms have sophisticated human resource programs designed to attract the best and brightest candidates from highly rated public and private colleges. Each of the international accounting firms tries to differentiate itself to recruits and potential new clients by emphasizing the following: their size and global delivery network, industry specialization, staff training, ethnic and gender diversity, family friendliness, clientele, compensation and benefit plans, and career planning. Indeed, they all succeed greatly in gaining new customers and top accounting and business school graduates. Fortune magazine ranked Ernst & Young, PwC, Deloitte, and KPMG numbers 25, 58, 76, and 97 respectively on its list of the “100 Best Companies to Work For.” Fortune identified distinguishing factors for each of these firms. Ernst & Young installed a program that caters to senior staff, which complements its “People First” culture. PwC provided financial assistance to 43 of its employees to help recover their losses from Hurricane Katrina. Deloitte offered extra vacation days to all 35,000 employees as a reward for reaching record revenues. Finally, KPMG matched 401 (K) contributions to 75 cents per employee up to 5 percent.

Industry specialization is also a differentiating factor among the “Big Four”, especially with regards to attracting professionals and potential clients. While PwC is known for its specialization in banking and other financial services, its competition places their interest elsewhere. Deloitte emphasizes its retail expertise, KPMG focuses on the insurance industry, and Ernst & Young concentrates on the healthcare industry. The geographic footprint of “Big Four” is very similar as are their menu of services.

“Gold Standard” for the Industry

PricewaterhouseCoopers has long been the “gold standard” against which the largest international accounting firms measure their