Introduction
KPMG is a major player in the accounting world, as shown through its status as one of the Big Four
accounting firms. Looking at past strategies of the firm serves to inform exactly how the company
achieved its current level of success. Though they have numerous competitors, KPMG is constantly
evolving in order to keep its position as a top firm.
KPMG History
KPMG began in 1897, when James Marwick and Roger Mitchell formed the accounting firm Marwick,
Mitchell & Co. The newly established firm thrived in its banking practice, while also adding insurance,
thrift field, and fund brokers divisions. A few years later in 1911, Marwick, Mitchell & Co merged with
Peat to form Peat, Marwick, Mitchell & Co; a merger that expanded the company’s position into Europe.
In the 1970’s, the Securities Exchange Commission made it mandatory for public companies to retain
accounting services in order to increase disclosure for investors. This new regulation created a much
larger demand for the firm's accounting services. More recently in 1986, Peat Marwick merged with
Klynveld Main Goerdeler, a Dutch accounting firm, and the final major piece to form KPMG
(fundinguniverse ).
In 1989, KPMG Peat Marwick had six divisions: “financial services; government; health care and life
sciences; information and communications; manufacturing, retailing, and distribution; and special
markets and designed services” (fundinguniverse). KPMG Peat Marwick then began to separate their
accountants into divisions that work only in certain industries. In 1993, the firm launched an advertising
campaign in response to the stagnant sales of the time. This move proved to be successful, causing an
increase in revenue of 10%, 2.29 billion to 2.53 billion, from 1995 to 1996. A few years later in 1998, the
firm launched a campaign with the catch phrase “It’s time for clarity” in order to separate itself from the
competition and also shortened its name from KPMG Peat Marwick to KPMG LLP (fundinguniverse ).
In 1999, KPMG started taking a major global stance in the Americas; Europe, Middle East, and Africa
(EMEA); and Asia-Pacific. In 2001, KPMG sold 10% of their consulting services and made the consulting
segment its own separate entity. From 2001-2002, a rival firm Andersen Worldwide was in the middle of
the Enron scandal, which eliminated their ability to audit public firms. KPMG saw this as an opportunity
to expand and decided to acquire 23 of Andersen’s consulting units. A short while later, the firm decided
to sell its Netherland, German, Swiss, and Austrian consulting units; they also terminated their legal
services division. In 2006, KPMG implemented the IFRS (International Financial Reporting Standards) and
ISA (International Standards on Auditing) in order to create some consistency among their reports since
they operate in multiple countries with multiple reporting standards (MarketLine).
Big Four Competitors History
One of the biggest competitors to KPMG is PricewaterhouseCoopers, an accounting firm that got its
start in London, similar to KPMG. Samuel Lowell Price was an accountant in London in the 19th century
who started his own accounting practice. Edwin Waterhouse also started his own successful accounting
firm in London that was considered one of prominent status. The final member of
PricewaterhouseCoopers is the merged company Coopers & Lybrand, which are made up of the William
Cooper and William Lybrand firms in London. Price and Waterhouse merged in 1874, and in 1998 there
was a merger between Coopers & Lybrand and Pricewaterhouse. The resulting company is the current
PricewaterhouseCoopers (John M. Schwarz).
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William Welch Deloitte is the founder of the London accounting firm Deloitte, which is another major
competitor to KPMG. William was the “first external auditor” and established systems that created
transparency so that investors could be informed about their decisions (John M. Schwarz). William also
went on to be president of the Institute of Chartered Accountants. In the 20th Century, Deloitte merged
with Touche and Japanese accounting firm, Tohmatsu Awoki & Co. to become the company in its
current form (John M. Schwarz).
The American firms of Ernst and Arthur Young & Co are the name sakes that merged in 1989 along with
Whinney Smith & Whitney and Broad Patterson & Co. The result of the mergers is Ernst & Young, which
is the only Big Four accounting firm to have its main ties to the U.S. (John M. Schwarz).
180000
160000
140000
120000
KPMG
100000
PWC
80000
Ernst & Young
60000
Deliotte
40000
20000
0
number of employees
John M. Schwarz. n.d. 16 04 2012 <http://www.johnmschwarzlaw.com/a-brief-history-of-the-big-4public-accounting-firms/>.
Current State of KPMG
Financials
KPMG had a 10.1% increase in revenue from 2010 to 2011 leading to revenue of 22.71 billion dollars.
The firm currently has three services: Audit, which makes up 46% of the revenue; Advisory, which makes
up 33% of the revenue; and Tax, which makes up the last 21% of revenue. Each segment of the firm had
a healthy growth from 2010 to 2011, with Audit growing 5.8%, Tax growing 13%, and Advisory growing
14.8%. By separating the 22 billion dollars into regions, we see that 7.05 billion comes from the
Americas, 4 billion comes from the Asia Pacific region, and 11.66 billion comes from the Europe, Middle
East, Africa and India (KPMG).
Operations
The Audit, Tax, and Advisory segments of KPMG makeup the operations of the international firm. The
Audit segment serves the purpose of providing the necessary resources for internal controls. They also
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audit attestation services as well as financial statements to ensure their accuracy. The Tax segment is an
offered service that helps corporations with tax compliance and risk. KPMG will handle all aspects of a
company’s taxes and will also resolve any issues that arise related to tax. The advisory segment serves
companies looking for input on how to assess risk. The Advisory segment also offers assistance on longterm risk, management structure, and transactional solutions (MarketLine).
Regulations
An issue that KPMG will face in the near future is converting their accounting standards to a new
standard of rules. This will be an adjustment for all U.S. corporations to switch to IFRS (International
Financial Reporting Standards) because U.S. Accountants have been trained in the GAAP (Generally
Accepted Accounting Principles) for many years. The benefit of the switch is that it is a unified standard
of reporting since 100 countries already require reporting in IFRS. The switch will also help U.S.
corporations compete for capital because the reporting will be in a standard that is more widely
accepted (Heffes).
Global Citizenship
KPMG is not only successful financially, but they have also managed to set an image as a responsible
corporate citizen through various works. Over the past three years, KPMG has reduced its per employee
emissions by 29% and hopes to achieve an additional 15% reduction by 2015. KPMG also started the
Bright Program, in which KPMG employees developed employability training modules for Restless
Development and Child Helpline International. In the United States, the firm started a program called
Family for Literacy, which has given 1.5 million books to underprivileged children. In the aftermath of
the recent earthquake in Japan, KPMG responded by donating over three million dollars of aid, along
with encouraging the Red Cross to help the citizens of Japan (KPMG). KPMG does its part to make sure
that the environment is not only good for business but for the citizens of the regions it occupies.
Work Week
In order to keep its position as a top accounting firm, KPMG has had to sometimes employ unorthodox
methods of doing business. One of these methods has been implementing a four day work week. The
reason for the four day work week was to save money on man hours and also on the operating costs of
a fifth working day. KPMG has been able to get 86% of their employees to agree to this new work week.
The company received criticism from employees who thought they would make less money, so KPMG
had to sell the employees on the idea of four to twelve partial pay vacation days or one day a week of
unpaid leave. This move has created some curiosity from other businesses and the possible savings they
could incur (Churchard).
Conclusion
KPMG has come a long way from its small beginnings in London, England to its current status as a Big
Four accounting firm. The firm is competitive in the economic landscape, but also sees the need for
good corporate citizenship. They have certain challenges ahead of them but their history shows they
have the drive to get through and excel as a top accounting firm.
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Works Cited
Churchard, Claire. "Employers follow KPMG lead on four-day week." people management 02 07 2009: 99.
fundinguniverse . n.d. 16 04 2012 <http://www.fundinguniverse.com/company-histories/KPMGInternational-company-History.html>.
Heffes, Ellen M. Global Accounting Firm CEO's on Challenges - Transitioning from GAAP to IFRS, and
more. 05 2008. 04 04 2012 <www.financialexecutives.org>.
John M. Schwarz. n.d. 16 04 2012 <http://www.johnmschwarzlaw.com/a-brief-history-of-the-big-4public-accounting-firms/>.
KPMG. KPMG International Annual Review. 2011. 16 04 2012
<http://www.kpmg.com/Global/en/WhoWeAre/Performance/AnnualReviews/Documents/kpm
g-international-annual-review-2011.pdf>.
Market Line. KPMG international Company Report. n.d. 25 04 2012.
MarketLine. Datamonitor. 21 02 2012. 21 04 2012
<http://360.datamonitor.com.ezproxy.baylor.edu/Product?pid=D9F39E64-829A-4437-B329C5AB2F8CE0C7&view=BusinessDescription>.
—. Datamonitor. 21 02 2012. 16 04 2012
<http://360.datamonitor.com.ezproxy.baylor.edu/Product?pid=D9F39E64-829A-4437-B329C5AB2F8CE0C7&view=BusinessDescription>.