Australia’s lucrative consulting market bares fruits from accounting switch-up

Traditionally, audit and tax services were the primary functions of the Australia’s largest accounting firms. However, the tides have changed and firm’s who have turned to advisory/consulting services are the same who experienced the highest growth rates in the past year.

Smart accounting firms, from the Big Four – KPMG, EY, PwC and Deloitte – to boutique firms and startups are moving into consulting to drive growth. The payoff has been outlined in the Australian Financial Review’s latest Top 100 Accounting Firm’s 2018 ranking, which identifies that players who have made the move, are reaping the rewards.

Collectively, the Big Four in Australia represented 70% of the total revenue of accounting firms over the last financial year. Roughly $7.8 billion of $11.25 billion. As audit and accounting tasks become increasingly automated, firms big and small are looking to diversify. Advisory was the logical next step with the introduction of computing and the firms moved into a range of consulting and professional service roles.

Alongside McKinsey & Company, The Boston Consulting Group and Bain & Company, the Big Four joined the ranks of management and strategy consultants to bump up their accounting businesses. With revenue from consulting overtaking accounting a few years ago, the firm’s now prefer to be considered as professional service firms or accounting and advisory firms.

This transition marks the beginning of what seems to be limitless branching out, with many professional service firms dabbling in the legal profession, creative agency domain, technology and even forensics.

The Big Four’s audit revenue as a percentage of the firm’s overall earnings has collectively dropped over the past four years. Last year, Deloitte had the the lowest of the four, with the revenue from the audit of financial statements only accounting for 14.7% of the total. PwC – with the largest total revenue – followed with 18.7%, KPMG derived 21% from audit and EY is the firm with the most reliance on audit for revenue.

“Investors and capital markets, particularly as it relates to audit quality, benefit from the depth and breadth of capability available within a large global audit firm with multiple complementary services," said the head of Deloitte Australia, Cindy Hook.

“Large scale and international reach meet the needs of global capital markets and the many companies doing business across borders,” she continued. “Combined in one firm we have a wide range of audit, tax, and advisory services which is desirable because synergies result from the interactions among professionals with these different disciplines.”

The top four of the list thus on the Top 100 Accounting Firm’s 2018 ranking – who account for just under three quarters of the entire accounting revenue in Australia – are only relying on audit for between 14 and 22% of their income. This number poses a great shift in the scope and scale of businesses in Australia and follows a greater global trend. Some may call it modernising but others see it as survival.