Deloitte, Ernst & Young (EY), KPMG, and PricewaterhouseCoopers (PwC) make up the so-called Big Four accounting firms, as they account for two thirds of the international market for such services. However, these firms are not individual firms, so much as they are networks of franchisees that collaborate under a shared brand name. Together in 2022, these networks accrued $189.6 billion in revenue and employed 1.37 million people. Of their total revenue, 29% came from auditing and assurance, 21% came from tax and legal work, and 50% came from consulting, a sharp increase over the last decade.
This market dominance, combined with a report stating that 31% of audits are bungled, has led to increased scrutiny over these professional networks. Some of these failures could be attributed to clients disincentivizing critical reports. The United Kingdom is considering forcing these networks to divorce their auditing and consulting businesses; however, no firm action has been taken apart from EY announcing their intent to do so, then putting an indefinite pause on plans to follow through. In the United States, the Public Company Accounting Oversight Board has only taken disciplinary action in 6.6% of the auditing misconduct cases.
Within this context, the following analyses examine the federal litigation in which these firms have been involved since 2019. Overall, cases have been fairly consistent over the time period, though there is some evidence that cases may have hit a slight peak in 2020. Deloitte has been involved in the most litigation at a total of 105 cases, with the others totaling around 40 cases each.
Case Types
Regarding the nature of these suits, the most common types have been 442 Civil Rights – Jobs and 850 Securities, Commodities, Exchange with 28 cases each, though 14 of the former have been appealed to the circuit courts, while only 5 of the latter have been so appealed. The Civil Rights Jobs cases are the fairly usual mix of plaintiffs alleging wrongful treatment based on their gender, age, or race. Half of these 442 cases targeted Deloitte.
The Securities, Commodities, Exchange cases, on the other hand, do not directly target the big four. Instead, with one notable exception, these cases allege various companies committed securities fraud and that the big four were ostensibly complicit in that they provided supposedly false or misleading audits.
The one notable exception is Securities and Exchange Commission v. MintBroker International, Ltd. et al. In this case, the Securities and Exchange Commission shut down and forced into receivership MintBroker for being an unregistered broker-dealer. As part of the litigation, Guy Gentile, the owner of MintBroker, sued EY and others for allegedly intentionally driving his company into bankruptcy.
The third most common Nature of Suit code is 791 Employee Retirement Income Security Act. These cases concern individuals suing primarily Deloitte, alleging their retirement fund is not properly handling their savings.
Courts
Of all the federal cases involving the big four, 163 (73.4%) were heard before the district courts, 34 (15.6%) were heard before the circuit courts, 24 (10.7%) were heard before various bankruptcy courts, and 2 (0.9%) were heard before the Court of Federal Claims. Considering the plurality of cases concern Securities, Commodities, and/or Exchange, unsurprisingly, the plurality of cases were heard in the Southern District of New York, followed by the Northern and Central Districts of California.
Firms
Each of the firms analyzed is represented by a number of lawsuits in federal court. Deloitte is represented by firms like Day Pitney and King and Spalding.
PwC preferred to work with Wilmer Cutler Pickering Hale and Dorr; Chiesa Shahinian & Giantomasi; Sidley Austin; and Winston & Strawn. Rounding out the Big Four, KPMG primarily worked with Ogletree, Deakins, Nash, Smoak & Stewart. EY mostly worked with Williams & Connolly.