A brief analysis of Public Accounting

For some reason, I got interested in the relative size of public accounting firms and decided to do a little research.  I found Public Accounting Report's - Top 100 For 2006 here (PDF warning, ~600k!) from August of 2006.

Using the data from page 2, I ran a few numbers on the top 25 firms ranked by revenue.  I knew that it was big, but I never realized the incredible magnitude difference between the Big 4 Accounting Firms and everyone else in the market.

Average Revenue:
Big 4: $6,167MM
Next 10: $473MM
Bottom 11: $109MM

Average number of partners:
Big 4: 2,079
Next 10: 253
Bottom 11: 61

Average number of professionals:
Big 4: 18,245
Next 10: 1,809
Bottom 11: 482

Average number of offices:
Big 4: 96
Next 10: 38
Bottom 11: 10

Average professionals per office:
Big 4: 189
Next 10: 52
Bottom 11: 62

Average SEC Clients:
Big 4: 1,596
Next 10: 111
Bottom 11: 27

In fact, if you combined the 5th through the 25th ranked firm, you still wouldn't equal one of the average Big 4 firms.  Instead, you just have a lot more partners/professionals/offices producing lower revenue.

Revenue: $5,930MM vs $6,167MM for the Big 4 average
Partners: 3,204 vs 2,079  for the Big 4 average
Professionals: 23,390 vs 18,245 for the Big 4 average
Offices: 491 vs 96 for the Big 4 average
SEC Clients: 1,407 vs 1,596 for the Big 4 average

As you can see, there are some incredible economies of scale for the Big 4 firms.  It appears that much of it is related to the number of SEC clients.  The Big 4 have a combined total of 6,383 vs only 1,407 for the next 21 biggest CPA firms.

Compared to the average for "The Next 10" the Big 4 has:

  • 13 times as much revenue
  • 8 times as many partners
  • 10 times as many professionals
  • 2.5 times as many offices
  • 14 times as many SEC clients
Of additional interest was the total number of CPA's in the United States.   The AICPA claims to have 330,000 members and states that 3 out of every 4 CPAs are members.  This means there are somewhere around 440,000 CPAs in the United States.

If you add together the number of Partners with the number of Professionals (assuming that they are almost entirely CPAs) of the Big 4, you get 81,297. So, roughly 18.5% of all CPAs are employed by the Big 4. Another 26,594 are employed by the next 21 firms ranked by revenue or about 6%. The total for the Top 25 is 107,891 employees. The AICPA states that 133,379 of it's members are employed in public accounting. Using the same 3/4 ratio of members/actual, this means there are a total of 177,839 CPAs total in public accounting.  Of this number, 61% work for the top 25 firms and 45% work for the Big 4 alone.