View the top 20 international alliances and associations, 2020, here, and the top 20 international networks here.
Despite continuing economic uncertainty, even before the outbreak of the pandemic, the international accountancy groups have maintained steady growth. Looking at both networks and associations, the top 40 groups have produced a combined worldwide fee income of $247bn (£189bn), a four percent increase on previous year’s results. The top 29 all had fee income in excess of $1bn.
However, due to differing year ends, these figures will not reflect the full impact of the pandemic, although the overwhelming majority of those whose figures span at least some of the pandemic period have still reported growth.
The figures are, as always, heavily skewed towards the Big Four networks of Deloitte, PwC, EY and KPMG, which between them accounted for $156bn of the total fees (63 percent). Although KPMG has yet to publish its figures for its year ending September 2020, the other three have all reported varying degrees of growth: Deloitte, the largest of the networks, saw its fee income grow by three percent to reach $47.6bn while PwC recorded a more modest 1.4 percent growth to reach $43bn. EY, the third largest network, reported an impressive 6.9 percent growth, with fees reaching $37.2bn for the year ending June 2020.
It is interesting to note that the three Big Four networks that have so far reported their figures will have already seen some of the impact of the pandemic. As EY’s global chairman Carmine Di Sibio says: “Like many other organisations around the world, life at EY this year changed dramatically. But we were well prepared. Through the crisis, EY teams worked across borders and service lines to re-route clients’ supply chains, manage liquidity, guide them through government stimulus packages, and advise on the impact on stakeholders.
“Now we’re holding deeper conversations with clients, around helping them innovate and build resilience for the financial, societal and regulatory challenges, and opportunities, beyond the pandemic.”
It is a similar story at the largest network, Deloitte. “2020 has been a tale of two halves,” says Punit Renjen, Deloitte global CEO. “In the first part of the year, we were serving our clients, people, and communities as normal, then the pandemic struck, bringing with it a level of global disruption we’ve rarely seen in our 175-year history.
“Our number one priority has remained the health and safety of our people. From the beginning, we adopted a ‘people-first’ approach recognising that we all needed flexibility and support to adjust to the new normal. Amidst a tragedy that has affected millions, we continue to focus on our professionals’ mental and physical wellbeing as well as addressing the pandemic’s profound impact on our clients and communities.”
PwC tells a similar story. “While the last few months have been very challenging for everyone, we have re-focused our business to help our clients manage the immediate impacts of the pandemic and reinvent their businesses for future success,” says Bob Moritz, chairman of the PwC network. “It has never been more important to provide our stakeholders with high quality services.
“We have also continued our significant investments in technology and upskilling our people to help build a sustainable PwC for the future. Our investment in technology was borne out at the height of the lockdown when 95 percent of our 284,000 strong workforce was operating out of the office with no interruption to the service we were able to provide.”
Of course, as Moritz’s comments confirm, the Big Four have significant resources behind them, allowing them to put in place the necessary infrastructure. What is perhaps more interesting is how the smaller international groups have fared.
BDO’s CEO Keith Farlinger says the markets in which its firms operate continue to be driven by technological transformation, and the pandemic has accelerated their own digitisation. “As with most organisations, BDO has quickly adapted its way of working, switching at first almost entirely to remote working. Our BDO colleagues worldwide have never stopped supporting our clients, as they could rely on a strong foundation of technology.”
David Mellor, chief executive of Crowe says the organisation went through a process of scenario planning, resilience testing and cashflow forecasting, while all the time considering the welfare of staff. “All travel stopped in March,” he says. “We closed the New York City office, and will not return there this current year.”
All Crowe’s international events were moved to a virtual platform overnight, allowing member firms to share methodologies, responses to the pandemic and what they are individually doing for clients. “We offered support over issues such as going concern and advice on government assistance, business risk, cyber security, remote working as well as health issues. This played to our core purpose of trusted professionals who care,’ Mellor says.
Other mid-tier groups make similar points as they seek to support their member firms. GGI’s CEO Michael Reiss von Filski says: ‘In 2020, traditional conferences were no longer possible and we immediately moved to Zoom webinars, covering a broad array of topics: professional ones, best practice ones, thought leadership and also country or region-specific ones.
“Our members have been very busy, and they have embraced the fact that the more than 20 in-person conferences per year, organised by GGI, have been substituted by some 50 webinars, offered at no cost to all GGI member firms and their partners and staff. Our members have handled the changes very well and they are actively using the network for the benefit of their international clients.”
Like other networks and associations, von Filski is now looking ahead with a degree of nervousness: “The most immanent threat is an economic downturn, paired with the overall global uncertainty. More specifically, some industries have been severely affected as a consequence of the pandemic. Some tourist regions cannot bank on local tourism, the airline industry has been hit very hard, commercial lending is suffering and it is not yet clear how this will affect independent member firms of networks and associations. In particular, thinly capitalised or strongly leveraged professional service firms, eventually with a considerable investment in office space, might go through challenging times.”
The last year has seen two mergers at the network or association level – CPAAI came together with MGI Worldwide, doubling its size overnight, while JHI disappeared into Abacus Worldwide. Could this be the start of a wider trend?
“I believe the current climate will bring more opportunities for groups to combine through mergers,” says Abacus CEO Julio Gabay. “Some lesser established groups may end up going away if they are not prepared in terms of technology, strategy and service offering for members.”
Clive Viegas Bennett, MGI’s chief executive, is more sanguine. “I don’t think this is anything new, look back at Nexia, Praxity, Morison KSi and PrimeGlobal, to mention a few,” he says. “Our own merger was a logical step and grabbing an opportunity, not part of some paradigm shift. The same goes with moves of firms among networks. Yes, there will be switches and maybe a merger or two, but I don’t see a tsunami or even a surfer’s wave.”
Anton Colella, Moore Global CEO, sees that firms are clearly looking for a greater sense of value and benefit from membership of a network and association. “The last year has also brought to the fore the fundamental importance of the quality of relationships, the sense of common purpose and collective values within organisations. Inevitably, this will lead to movement,” he says.
But Colella adds that networks are working hard to keep hold of their existing member firms. “Increased scrutiny by firms of the value of their membership of a network is driving an enhanced offering. This is particularly in the areas of learning, leadership development, support for small and medium-sized practices, technology solutions and centrally facilitated collaboration and product sharing. The present crisis has accelerated our drive to become a more complete network.”
Steve Heathcote, CEO at PrimeGlobal, develops this point: “Some firms may find it hard to survive the pandemic, which could present financial challenges for a few associations or networks. Their member firms may conclude that they will get more opportunity and support from associations which have stronger membership profiles.
“Networks are normally more expensive than associations. Firms may be looking for savings as they recover from the pandemic. We are therefore likely to see more independent firms move from networks to associations. Associations provide the same global benefits without the cost of standard quality reviews and brand usage.
And he adds: “Mid-tier networks are struggling to compete with larger networks. International business is likely to consolidate post-pandemic, so the ability for the mid-tier networks to win international work will diminish. The mid-tier networks are likely to enforce their brand usage to try to create a coherent response to large networks. This may result in more independent firms leaving networks as they wish to keep their own identify.”
Aside from pandemics and organisational challenges, the groups recognise the threats, and opportunities, that could arise from regulatory intervention, notably in the audit market. As Heathcote says, almost 40 percent of his member firms’ service line focus is on audit and assurance. “Member firms are implementing new standards and guidelines, particularly regarding advice and standards relating to the pandemic, for example, addressing fraud, going concern and valuation risk.
“They also must be even more vigilant to maintain objectivity standards; as companies do everything they can to survive, the pressure to help them intensifies and could challenge the ability for auditors to remain neutral as they desire to help their clients.”
He adds that in North America, some firms have found the additional scrutiny so extensive that they are considering withdrawing from the audit market, particularly as audit is generally low profit. “It brings too much pain and not enough gain,” he says.
“The process of audit reform is being driven at a country level and there is a wide range, from country to country, as to the nature of audit reform recommendations and the status of related proposals,” says Theo Vermaak, CEO of PKF International. “Market intervention is considered by some to create opportunities for mid-tier networks. However, there are risks associated with many reform proposals, which may have unintended consequences and therefore pose threats to both large and smaller firms and networks.”
Looking more widely, Vermaak adds that the pandemic could exacerbate other risks that threaten the networks and associations: ‘The threat of a lapse in quality is constant but it is heightened at the moment due to the stress and uncertainty that the coronavirus has caused to the global economy.
“Understanding global risk is a big threat to international networks, both in terms of global risks to their clients and the risk to the networks themselves. The increase in globalisation, reliance on cloud technologies, proliferation of social media and the continued rise in cyber-crime, added to the uncertainties caused by the pandemic, collectively means that it is now more important than ever to think about risk in a broad global sense and to be very aware of the costs that could arise.”
Richard Attisha, CEO of TAG Alliances, agrees. But he believes that with the inherent disruption to governments and regulators, it is likely that there will be more pressing issues related to the pandemic that temporarily shift the focus from some of the recent controversial storylines in the accounting profession.
“This pandemic, and the resulting changes to the profession, have significantly shifted the focus of firms to managing risk exposures related to the quality of remote audits, remote sharing of information, data and cybersecurity issues, and effective and unified team interactions,” he says.
Strength in diversity
However, he points to a more subtle threat caused indirectly by the pandemic: ‘Another negative effect of this global instability is the most recent deterioration on diversity and inclusion.
“The lack of diversity on our teams and communities detrimentally impacts how we work and collaborate with others, restricts our ability to attract work, and discourages powerful leadership qualities that motivate teams to be better problem solvers, think creatively, and perform to their fullest potential. These actions will only regress our economies rather than fuel them.
“We endeavour to lead by example and demonstrate the strength and power that comes from a diverse community that is connected, supportive, agile, and resilient.”
It is this final point that perhaps sums up the whole raison d’etre of international networks and associations, explaining their continuing growth and importance to their members and the wider business world.