Big Four Global Accounting Firms

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The four global accounting firms, Deloitte, PricewaterhouseCoopers (PwC), Ernst & Young (EY) and KPMG – collectively known as the “Big Four” – are multinational networks of professional services firms. In 2019, they audited all of the companies in the FTSE 100.1 The majority of their revenue, however, comes from other services, such as tax advice, management consulting, corporate finance and legal services.2

A spate of corporate scandals involving audit failures have led to renewed calls for the break-up of the Big Four into separate audit and consulting firms. Concerns have been raised about their lack of skepticism and independence from company management if, at the same time, they are seeking lucrative consultancy work from the same companies. The UK’s Financial Reporting Council has ordered them to split their audit work by 2024 but resisted calls to break them up.3

Serving the Tobacco Industry

The Big Four have been employed by the tobacco industry as both auditors and advisors for many decades. While some of the services provided are technocratic, providing help on IT systems for instance, other work concerns issues of public interest. This includes: helping devise strategies to oppose tobacco control regulations, providing seemingly independent evidence to win public policy debates, and advising on corporate responsibility to shift public perceptions of tobacco companies.

Work for the tobacco industry has generated multi-million dollar fees. For example, from 1994 – 1998 KPMG generated revenues of approximately $47million from consulting and information technology engagements with one tobacco company, Philip Morris (PM). 2 In 2019 British American Tobacco (BAT) paid KPMG over £24million as its external auditors.4

Despite public statements of social purpose – PwC’s is to “build trust in society and solve important problems”5 – the actions of the Big Four demonstrate they serve the commercial interests of the tobacco companies and themselves.

Audit Work for the Tobacco Industry (and associated organisations)

Auditing of tobacco companies by the Big Four generates multi-million dollar fees, although these are overshadowed by much larger consulting fees earned from the industry. PwC has acted as external auditor to more of the world’s biggest tobacco companies for longer.

Tobacco client Independent auditor Dates 2019 fees for audit and audit-related services
Philip Morris International  PWC 2008 – present $21.1million
Foundation for a Smoke Free World EY 2018 – present
Altria / Philip Morris PWC pre 1934 – present $7.7million
British American Tobacco KPMG 2015 – present £24.7million
PWC 1998 – 2014
Deloitte  1940s-90s (certain periods)
Reynolds American Inc KPMG At least 2000 – present
Imperial Brands EY 2019 – present
PWC 1996 – 2019 £7.6million
Japan Tobacco International Deloitte At least  2005 – present
Lorillard Tobacco Company Deloitte  At least 1947 – 2015 (when sold to RAI)
Notes on the table: mergers among the Big Four in the 1980s/1990s make clear timelines on tobacco auditing difficult; we are unable to provide a figure we are confident on for Deloitte’s JTI fee

Non-Audit Services for the Tobacco Industry

Positioning tobacco as ‘responsible’ to ‘regain influence’

For many decades the Big Four have helped controversial companies, including tobacco, improve their reputations. The consultancies provide advice on devising and implementing strategy, giving notional external verification of industry claims (“whilst being aware of any potential conflicts of interest,” as PwC notes6) and promotion through corporate social responsibility awards.

In the late 1990s, as the tobacco industry’s denial campaign was exposed and the companies found themselves facing both growing skepticism among policy-makers and an increased threat of regulation, the industry sought to win back trust – and a seat at the table – by repositioning themselves as ‘responsible’.

Ernst & Young advised British American Tobacco (BAT) to “take the lead” in positioning itself as a trusted adviser to governments by taking a “responsible and long term perspective on issues” and providing politicians with “accurate, measured and fair” information.7 Once trust is established with government “lobbying is much easier”, EY wrote.

BAT’s aim to rebrand itself to “regain influence and control of its future”8 was later developed by KPMG and PwC (BAT’s independent auditor at the time), with both pitching to work on its corporate responsibility programme. PWC put its estimated costs at $2-3million.9

KPMG’s recommendations focused on BAT taking voluntary action on public health issues, such as curbing underage smoking, and working with governments to “guide legislation”.8 The firm was clear that BAT did not need “to get out of the tobacco industry”.10 The goal was to shift perceptions so that BAT was seen as “the responsible company within a controversial industry”. 8

This strategy was apparent in the late 1990s in the tobacco industry’s campaign to counter the threat posed by the World Health Organisation’s proposed Framework Convention on Tobacco Control (FCTC),11 which saw BAT take a lead in promoting an alternative voluntary regulatory regime.12 KPMG proposed to help ensure that BAT’s proposals became a “powerful tool” rather than a “spoiling tactic, which backfires on BAT”.11

Producing Information to Support Tobacco Lobbying

The Big Four have all produced tobacco-funded reports that have been used to support industry lobbying against tobacco control regulations and are often directed at persuading policymakers and the media.

They have also conducted studies for tobacco industry allies and proxies, such as Ernst & Young for the Foundation for a Smoke-Free World (see ‘Potential for conflicts of interest’ below), providing useful third party endorsement for tobacco lobbying positions.

However, rather than being “accurate, measured and fair”, as EY counselled,13 the quality of much of the information produced in these reports has been heavily criticised (see ‘Criticism of Big Four work for the tobacco industry’, below). It has, however, earned the Big Four many millions over decades.

Studies on the Negative Economic Impact of Tobacco Regulation

Tobacco companies have long argued that the economic benefits of the industry outweigh the negatives of what their products. Consultants from the Big Four have helped the industry develop strategies around this argument with some – KPMG in the 1970s and 1980s14 and PWC in the 1990s – producing multiple reports to bolster this case.15

A 1997 EY ‘route map’ for BAT stated that these studies have proved a “valuable lobbying tool” for the industry.16

Studies Exaggerating the Illicit Trade in Tobacco to Fight Regulation

Another issue that the tobacco industry has used to push back against regulation is that it will drive the trade in illicit tobacco. Again, Big Four firms have provided multiple studies to support these claims.

Philip Morris International (PMI), for example, funded KPMG to quantify the scale of the illicit trade in Europe, beginning in 2006;17 BAT funded reports by PwC in the 2000s that detailed the supposedly growing problem of Australia’s illegal tobacco market;18 and in a 2010 report for BAT, Ernst & Young claimed that the true level of illicit tobacco consumption in New Zealand was three times higher than previously thought, and that a tobacco tax hike could push it higher.19

Illicit Tobacco Studies used to Oppose Plain Packaging Around the World

Many of these reports by the Big Four on the illicit trade have been presented to policy makers to argue against the introduction of standardised, or plain packaging, regulations, particularly in Australia and the UK which have led on the issue. Plain packaging, the industry claimed, will make counterfeiting easier.

Ahead of the regulation’s introduction in Australia in 2011, for example, Deloitte published multiple industry-commissioned reports on the illicit trade and plain packaging in the country, as well as an international study on the “intended and unintended consequences” of plain packaging for BAT.20 When the UK government consulted on plain packaging in 2012, BAT21, Imperial Tobacco, Japan Tobacco International (JTI)22 and PMI23 submitted as evidence claims from Deloitte’s reports.

Big Four firms have also been employed to produce studies that undermine plain packaging once it is introduced, with EY disputing in a report for BAT plain packaging’s role in curbing tobacco consumption24 and KPMG examining the regulation’s link to smuggling.25

Criticism of Big Four Work for the Tobacco Industry

Potential for Conflicts of Interest

There is clear potential for conflicts of interest from the Big Four providing consultancy services to firms they audit.26 Audits provide shareholders with an independent opinion of a company’s financial position, and as such it should not be influenced by any other, potentially more financially beneficial relationship with company management. The Big Four, however, regularly provide other services to organisations that they audit.

Ernst & Young, for instance, is the external auditor for the Foundation for a Smoke-Free World,27 which describes itself as an independent scientific organisation but is solely funded by PMI.

In 2018 a consultancy arm of Ernst & Young was commissioned to produce a report for the Foundation – a report that promoted a message supportive of PMI’s lobbying28 and which was criticised as an exercise in “market research for PMI”29 – and in 2019 the Foundation gave the auditing firm a grant of over US$1million for a further study.27

Criticism of Quality of Big Four Reports for Tobacco

Reports by Big Four firms designed to provide credible, third party support for the tobacco industry’s lobbying have been heavily criticised by governments, academics, NGOs and even rival firms for their: flawed methodology, bias, exaggeration, use of unsupported assumptions, and for referencing other industry-funded, rather than independent research.

A 2005 economic impact study by PwC, for example, which was used to oppose a smoking ban in New Jersey, was not based on hard data, but rather “a series of unsupported assumptions,” according to analysis by Stanton Glantz, Professor of Medicine at University of California30 “Grossly exaggerated”, “one-sided” and “flawed” was how rival firm Arthur Anderson described a previous tobacco economic impact study by Price Waterhouse.31

The Big Four’s reports on the potential for regulation to increase the illicit trade in tobacco have also been slated. Claims made in Deloitte’s reports on the illicit trade and plain packaging in Australia, were described by the country’s Minister in charge of customs issues, Brendan O’Connor, as “baseless”.32 He accused the lobby of scaremongering to protect profits.

Analysis by academics at the University of Bath of KPMG’s studies into the EU’s illicit trade concluded that it employed flawed methodology and used only industry-validated data.17 Regardless, PMI presented its findings in its evidence to the UK government’s consultation on plain packing.33

KPMG’s research on the impact of Australia’s plain packaging law on smuggling were also damned by the Australian Government as inaccurate. “Like previous illicit trade reports commissioned by the tobacco industry”, it said, KPMG “substantially exaggerates” the size of the illicit market.34

Ernst & Young’s warnings that a proposed tax increase would lead to higher levels of illicit tobacco consumption in New Zealand were described as “fundamentally flawed” in analysis by the New Zealand Institute of Economic Research, and “of no value in informing debate on policy measures to reduce tobacco consumption”.35 Despite this assessment, and Ernst & Young’s extensive work for tobacco companies, the New Zealand Ministry of Health appointed the firm to review its tobacco taxation policy in 2018.36

Criticism of Corporate Responsibility Work for Tobacco

Corporate responsibility programmes by tobacco companies have been widely criticised as public relations exercises designed to secure political influence and fend off tougher regulation. The WHO’s Framework Convention on Tobacco Control is clear that the goal of these activities by the industry are “to distance its image from the lethal nature of the product it produces and sells or to interfere with the setting and implementation of public health policies.”37

For more information see: CSR Strategy

Controversies outside of the tobacco industry

The Big Four have all been embroiled in numerous ethical and legal controversies dating back decades. From the lack of racial diversity in their recruitment practices38 to being too close to organisations to offer a meaningfully independent service.

Audit Failures

All of the Big Four firms have been investigated and fined multiple times for the poor quality of audits and concerns have been raised about their lack of skepticism and independence from company management.

Recent high profile scandals include: Deloitte’s “serious audit failings” in the case of technology firm, Autonomy;39 KPMG’s alleged negligence in its audits of outsourcing firm Carillion;40 PwC’s accounts of retailer BHS and the potential conflict with its consulting earnings, which were eight times its audit fees;41 Scandals involving Ernst & Young’s audit practice in 2020 led Forbes to ask “whether EY is more concerned about keeping clients happy than providing full and accurate audits”.42

Marketing Tax Avoidance Schemes

The Big Four firms have a history of developing and marketing complex tax avoidance schemes. A 2015 UK Parliamentary inquiry concluded that PwC’s activities, for example, represented the promotion of tax avoidance “on an industrial scale”.43

Criticised For Being too Close to Governments

The Big Four have long been influential voices in politics in Britain and around the world. Their access is in part a product of the many lucrative government contracts awarded to them, including multi-million pound contracts issued in 2020 without competitive tender as part of state responses to the COVID-19 crisis.44

Big Four firms have also donated millions to political parties in the UK; the revolving door between government and the Big Four includes many former UK ministers; and hospitality has been used to cement relationships. People like EY’s UK chief, Steve Varley, who is also a UK Treasury advisor45 enjoy unrivalled access to government. Meanwhile the audit companies second staff to the government which helps them gain an inside track.46

Role in Health Privatisation

The Big Four have been involved in the privatisation of public assets and services, providing advice to both governments looking to sell off and outsource services and corporations seeking to profit from the process. KPMG, for example, has been involved in efforts to restructure the National Health Service (NHS) in England. In 2010, KPMG’s head of health, Mark Britnall, told a conference of private sector executives that future NHS changes would show “no mercy” to the NHS and offer a “big opportunity” to the for-profit sector.47

Clients Accused of Corruption

KPMG has been embroiled in the scandal centred on the relationship between former South African president, Jacob Zuma and the powerful Gupta brothers. Partners at KPMG’s South Africa office audited a Gupta-owned company involved and approved the firm to treat as a business expense spending on a lavish family wedding, which four KPMG partners attended. KPMG lost multiple clients in South Africa over its involvement.48

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