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PwC and Deloitte Probably Don’t Care That They Lost So Many Audit Clients

One possible alternative title for Accounting Today's "scorecard for new SEC audit clients" would be "Jesus, PwC and Deloitte Lost a Lot of Audit Clients Last Year." I'll go out on a limb and say that it probably didn't even make the short list. AT went with "E&Y, KPMG Top 2012 for Audit Client Wins" which is fine because that is in fact newsworthy, however, there are several angles to a story like this and one might be that PwC and Deloitte's audit practices took it on the chin.

Now, if I were to call up PwC and ask the question, "Is the firm concerned that it lost 34 clients and only gained 18?" The person might tell me off the record, "I doubt it," but would have to get back to me, taking time to think, "WWBMD?" and then officially go with "PwC is committed to giving confidence to the capital markets by providing premier assurance services to its existing clients."

And if I were to call up Deloitte and ask a similar question, I wouldn't get through to anyone, my voicemail would get deleted and my call would not be returned. For the record, Deloitte gained eight clients and lost 34, per AT's numbers. 

True, there are probably a number of audit partners at both firms that care quite a bit about the net losses in SEC clients because, you know, money and stuff, but the firm as a collective body couldn't care less. Why? Glad you asked!

PwC, for starters, isn't going to lose audit clients like Goldman Sachs, JP Morgan, Exxon Mobil, or IBM. They just won't. The most prominent companies will demand the most prominent audit firm for their audit opinion and that won't change. BoMo & Co. will always be able to point to their roster of audit clients as the most prestigious.

Deloitte, on the other hand, really doesn't care. Why? Because I don't think Deloitte really wants to be an audit firm. Forget what Joe Echevarria says on Bloomberg; the firm made that decision back in early 2000s when they didn't spin off Deloitte Consulting. Plus, the growth in their FAS and Consulting businesses were more than double of the AERS (i.e. audit) practice (see UPDATE below). Their list of SEC audit clients — which, admittedly, includes Berkshire Hathaway and Microsoft — isn't nearly as impressive as PwC's. The assurance business simply isn't their highest priority. And it doesn't help that they suck at it.

And to top it all off, they're still the leaders in their industry by a wide margin, outpacing both KPMG and E&Y by BILLIONS of dollars. Unless those two firms plan on starting up merger talks again — not likely! — there's really no way for them to close the gap. 

But if want to keep scraping together net wins of SEC clients, that's cool. No one at 30 Rock or 300 Madison is losing sleep over it.

E&Y, KPMG Top 2012 for Audit Client Wins [AT]

UPDATE: Thanks to the helpful commenter that pointed out that I had this wrong. "ERS" is not audit. I should have written like "the 'A' in AERS" or something. Anyway, I regret the error because I don't like to be wrong. HOWEVAH! This mistake did lead me back to the Deloitte press release for a closer look and I read this:

Audit and Enterprise Risk Services (ERS) revenue grew by 6 percent. Audit grew most rapidly in the priority markets, especially in the Asia Pacific region, where Deloitte is well positioned to serve the fastest-growing sectors. ERS drove growth—double-digit growth in every region and industry—fueled by factors including heightened regulatory pressure, positive analyst ratings, and increased awareness of the importance of optimized risk management practices.

Okay, so ERS drove the growth which means audit didn't participate much. That's the first noteworthy item. Second is the "Audit grew most rapidly in the priority markets, especially in the Asia Pacific region where Deloitte is well positioned to serve the fastest-growing sectors" statement. That's nice and all, but will it make up for all the big auditing trouble in big China