The market for consulting services in the United States grew nearly four times faster than the U.S. economy as a whole, and the Big 4 gained the biggest share of the growth.
According to a new report from Source Information Services, the Big 4 accounting firms outperformed the U.S. market “by some distance” in 2014, growing 12.8 percent to $17.5 billion in revenue compared with 2.4 percent growth for the economy overall. The U.S. market for consulting grew 9 percent in 2014 to more than $50 billion in activity.
The report cites a confluence of factors contributing to growth in demand for consulting services -- an improved economy, growth in digitization and cyber security concerns, growth in mergers and acquisitions, driving a general demand for risk, financial, and technical consulting services. “People have more confidence in the economy now,” says Source senior editor B.J. Richards. “The dollar is strong, unemployment is down, oil prices are low. There’s been more to boost confidence than upset things. As companies are making that recovery, now they are returning to confidence and there’s a lot of pent-up demand.”
The Big 4 achieved its growth in consulting services largely as a result of their acquisition strategies, says B.J. Richards, senior editor at Source. “The big firms have been doing a lot of buying the last few years, especially the Big 4,” she says. “That leads to growth in size, but the Big 4 also are well positioned in many ways to take advantage of a sudden jolt in interest in financial management and risk, particularly cyber risk.”
Growth in financial services, the fastest growing industry sector, according to the research, also fueled the demand for consulting services, with regulation continuing to drive much of the activity and digitization adding to the complexity. Energy and manufacturing, also big consumers of consulting services, posted growth figures stronger than the economy as a whole, the reports says.
Regulators have called attention to growth in consulting services at the Big 4, questioning whether it raises concerns about the integrity of financial statement audits. James Doty, chairman of the Public Company Accounting Oversight Board, and staff members at the Securities and Exchange Commission have questioned whether firms are adequately committed to their audit work if their growth strategy relies on consulting services. “Should the structure of the firm be reorganized away from the partnership model to a more centralized corporate model?” Doty has asked. “What is the capability of audit leadership to evaluate and manage other business lines away from audit?”
Auditors operate under rules that require them to maintain clear independence from the companies they audit, so they are prohibited from provided most consulting services to their audit clients. That raises questions around whether firms have adequate processes in place to assure proper boundaries around permitted and nonpermitted services. The SEC disciplined Mayer Hoffman McCann in 2014 for a lapse involving stock purchases.
In response to the report, EY says all of its businesses, including assurance, advisory, tax and transactions, have had substantial growth. “Our assurance practice remains our largest service line and we project that will continue well into the future,” the firm said in a prepared statement. “As we grow, we continue to invest heavily in our quality and risk management processes that protect the integrity and independence of our role as independent auditors.” Other Big 4 firms did not comment.