Audit firms Consulting business drives growth at Big Four in Germany

KPMG, PwC, EY and Deloitte all reported 10 percent growth in fiscal 2018. Of accounting, auditing and consultancy services, strategic advice proved most profitable.
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The Big Four global accounting firms – PwC, EY, KPMG and Deloitte – grew by 10 percent on average in 2018. That increase, easily outpacing overall economic growth, is thanks to consulting.

KPMG was the last to report results for the year ended September 30; its output was up 10 percent to €1.83 billion ($2.09 billion). That spans revenue from projects begun in the fiscal year but not yet booked as revenue.

The only firm to do better was Deloitte, which registered an increase of 18 percent to €1.47 billion. German market leader PwC reported output up 5.4 percent to €2.2 billion, closely followed by EY with €2.0 billion, a gain of 8 percent.

PwC and EY expect fiscal 2019 output to show gains just under 10 percent, while Deloitte expects growth to be right at 10 percent. KPMG didn’t make a specific forecast but a “lively start” to the fiscal year indicated growth on par with last year.

Advising Pays

Consultancy drove much of the gain. KPMG’s advisory business drew even with auditing at about €670 million, but the growth rate in consulting was 17 percent.

At Deloitte and PwC, consulting became a bigger business than auditing. All four firms boosted consulting growth with acquisitions.

That, in turn, is thanks to globalization that has spurred growth in the consulting function. The firms cannot provide consulting services to the companies they audit, but they are especially effective with operational advice in finance, procurement and personnel.

The impact of this shift is evident in the numbers over a period of years. In 2015, the aggregate output of the four was €5.5 billion. Just three years later, the total is €7.5 billion, up 36 percent.

This doesn’t mean auditing is stagnant. KPMG’s auditing business grew by 7 percent, with Deloitte once again the only one bettering it with an 11-percent gain. Growth in audit opinions is boosting this sector, and audit-related consulting is also growing rapidly. This includes advice on risk management, white-collar crime, and the introduction of new accounting rules.

Growth in consulting is especially important for KPMG. It is currently the auditor for 18 of the 30 blue chips in the DAX index, but it is legally bound to rotate out of that position in the next few years. The only new audit customer in the DAX is Covestro, as the firm lost out to EY in bids for the audit business at VW, Deutsche Bank and Lufthansa.

“Sometimes one firm wins, sometimes another,” KPMG CEO Klaus Becker said, adding that there are new opportunities in any case.

Bert Fröndhoff heads Handelsblatt’s coverage of services. Darrell Delamaide adapted this article into English for Handelsblatt Today. To contact the author: [email protected]