The “Big Eight” firms provide auditing and accounting services for the vast majority of major corporations. The next seven largest accounting firms in the Nation are important, but do not match the “Big Eight” in terms of size and influence. The “Big Eight” are often called “public accounting firms” or “independent public accounting firms.” This study finds little evi- dence that they serve the public or that they are independent in fact from the interests of their corporate clients. For that reason, this study refers to the “Big Eight” simply as accounting firms.
Information on the “Big Eight” firms and other private segments of the accounting establishment is not readily available to Congress and the public from published sources. Therefore, it was necessary for this subcommittee to request information directly from the “Big Eight” and other private groups. Additional information was obtained from Federal agencies and other sources within and without the accounting profession.
The “Big Eight” firms are large organizations. Each has several hundred partners, and their supporting staffs range in size from ap- proximately 4,000 to over 8,000 persons. They maintain offices in every major city in the United States, and have affiliations in major cities overseas.
The influence exercised by the “Big Eight” firms far exceeds that which might be expected from the number of CPAs working for them. Only about 11 or 12 percent of the Nation’s estimated 160,000 CPAs are associated with “Big Eight” firms, but their influence is magnified because their clients are the largest and wealthiest corporations in the United States. Because of their large size, the “Big Eight” firms exercise substantial influence directly on accounting practices promulgated or approved by the Federal Government. They also exercise sub- stantial indirect influence through the American Institute of Certified Public Accountants (AICPA), which they control, and through the accounting practices followed by their corporate clients.
On the average, the “Big Eight” firms receive approximately 70 percent of their total revenues from performing auditing and account- ing services, 18 percent from performance of tax services, and the remainder from performing management advisory services. Auditing ~and accounting services involve designing a reliable system of record- keeping for businesses, checking the record-keeping system periodically to assure that it is effective, providing assistance in presenting finan- cial information so that it accurately conveys the results of business activities, and certifying financial statements for accuracy. Tax serv- ices involve helping clients achieve maximum financial benefits from provisions of Federal, State, local, and foreign tax laws.
Performance of management advisory services involves helping a client to manage its business, and goes beyond the expertise normally associated with the practice of accounting. The “Big Eight” account- ing firms provide management consulting services such as executive recruitment, marketing analysis, plant layout, product analysis, actuarial services, and financial management services. All eight firms employ professionals, termed “principals,” (who are not CPAs) to provide expertise in performing non-accounting management advisory services.
The supply of auditing and accounting services to corporations listed on either the New York Stock Exchange or the American Stock Exchange is heavily concentrated among the “Big Eight” firms. A study performed by the Congressional Research Service for this sub- committee found that 85 percent of the 2,641 corporations listed on the New York Stock Exchange and the American Stock Exchange are clients of “Big Eight” firms. Those clients accounted for one-half of the $2,552 billion in sales for the Nation’s manufacturing, trade, and retail sectors and about 84 percent of the $75.4 billion of corporate profits after taxes, using average annual data for the years 1974 and
Concentration of major corporate clients among the “Big Eight” firms is greatest on the New York Stock Exchange Avhere the largest corporations are listed. “Big Eight” accounting firms have 92 percent of the companies listed on that exchange as clients. For all the corpo- rations listed on the New York Stock Exchange, the clients of “Big Eight” firms accounted for 94 percent of all sales (revenues) received, 94 percent of all profits earned, 90 percent of all income taxes paid, 94 percent of all people employed, and 94 percent of all assets owned.
A single “Big Eight” firm — Price Waterhouse & Co.— provides auditing and accounting services for clients that account for 24 per- cent of the sales and 28 percent of the earnings on the New York Stock Exchange. Four other firms — Arthur Andersen & Co., Coopers & Lybrand, Haskins & Sells, and Peat, Marwiek, Mitchell & Co.— col- lectively are the auditors for 50 percent of the sales and 51 percent of the earnings for all of the corporations on that exchange. Thus, five of the “Big Eight” accounting firms collectively audit 74 percent of the total sales and 79 percent of the total net earnings of corporations listed on the New York Stock Exchange.
On the American Stock Exchange, 76 percent of the corporations listed are audit clients of “Big Eight” firms. For all the corporations listed on the American Stock Exchange, those clients account for 67 percent of all sales (revenues) received, 67 percent of all profits earned, 66 percent of all income taxes paid, 61 percent of all people employed, and 73 percent of all assets owned.
Again, the clients of Price Waterhouse & Co. account for the most revenue and income, about 16 percent of the total sales and 19 per- cent of the total net income of corporations listed on the American Stock Exchange. When the clients of Price Waterhouse & Co. are grouped with those of Arthur Andersen & Co., Coopers & Lybrand, Haskins & Sells, and Peat, Marwick, Mitchell & Co., those five firms are the auditors for clients that produce 45 percent of the sales and 49 percent of the earnings for all the corporations listed on the Amer- ican Stock Exchange.