Who Audits The Big 4? (Revealed For Each Company)

Although Big 4 provides consultancy for the financial matters for their clients, you might be wondering who audits them and makes sure they are compliant.

I dug deep and found that the Big 4 firms do not use any outside sources to audit them. These companies usually have an internal quality control system that self-checks their business practices. 

However, these firms are inspected by different regulatory bodies. But that mainly depends on the country they are operating in. 

In this article, I’ll reveal: 

• Who audits the Big 4 firms?
• What is the process of the Big 4 internal quality control system?

Who Audits the Big 4?

The Big 4 companies offer various services to their clients in the fields of:

• Audit
• Tax
• Assurance
• Management consulting
• Accounting 

These companies audit the financial statements of major publicly-held companies in the world. (Source)

But who audits them?

Each of the Big 4 firms is not publicly traded, so no outside party audits them. However, they are very serious about staying compliant with the business practices and the quality of their services. 

You might be wondering how! 

Well, these firms have their own quality control systems. It helps them:

• Find the pain points in their work.
• Identify any outdated processes and loopholes that even hint at them to become uncompliant. 

I think of these internal control systems of the Big 4 like a self-check procedure!

An employee working for a Big 4 firm says on Reddit: “My Big 4 firm has an engagement team perform a review (not an audit) of its own financials every year. It’s performed out of my office and is just like any other review engagement.” (Source)

There is one more thing I discovered: Different government bodies keep tabs on the Big 4 companies. But that mainly depends on the country where their offices are located. (Source)

Below, I’ll let you know the 4 auditing oversight bodies that supervise Deloitte, EY, PwC, and KPMG.

1. Public Company Accounting Oversight Board (PCAOB)

The Public Company Accounting Oversight Board is a nonprofit regulatory body (Created by the Sarbanes-Oxley Act of 2002). (Source)

Although PCAOB is not a government organization, the Security and Exchange Commission (SECP) can:

• Hire or remove a PCAOB member
• Approve its budget
• Look into appeals (related to the accounting firms). 

The PCAOB’s main objective is supervising accounting firms like Big 4, which provide independent audit reports (for publicly traded companies).

Some responsibilities of PCAOB (when it comes to Big 4) are: 

• Keep a check on the process of the Big 4 when it comes to quality control. 
• Checking the disciplinary procedures.
• Making standards and ethics for Big 4 related to auditing their clientele.

PCAOB does this for each of the Big 4 firms either annually or every 3 years to make sure they are compliant in their consulting practices! (Source)

2. Financial Reporting Council (FRC)

Next up on the list is the Financial Reporting Council! It closely monitors Deloitte, EY, PwC, and KPMG in the UK. 

Here’s what they do: 

• Quality oversight
• Regulate and supervise auditors, including Big 4
• Set corporate governance and stewardship codes

(Source)

Interestingly, FRC is not a government department! In fact, it is an “executive non-departmental public body.” 

However, FRC is sponsored by the Department of Business and Trade in the UK! This means it gets support from the government to inspect audit firms like the Big 4.

3. European Financial Reporting Advisory Group (EFRAG)

Like the other two bodies, the European Financial Reporting Advisory Group also supervises the Big 4 firms in European countries.

EFRAG was set up in 2001 by 10 European organizations. Its main purpose is to give input to IASB when they are making important accounting rules. (Source)

There’s more! EFRAG also advises the European Commission (EC) on the adoption of IFRS. Other than that, it reviews the work of the auditors who operate within the EU (Such as the Big 4 firms).

4. International Federation of Accountants (IFAC)

And then there is the International Federation of Accountants!

It does not directly audit the Big 4 firms. It encourages these accounting firms to adopt high-quality standards for:

• Auditing
• Work ethics
• Accounting practices

(Source)

IFAC has 175 members and associate organizations in 130 countries. This regulatory body also represents the accounting profession related to public policy issues. (Source)

It’s important to note that the Big 4 are not audited like Microsoft, Apple, Pepsi, Walmart, and other companies. The supervising bodies that I mentioned above can only inspect the quality of their audits.

The table below gives you an overview of these regulatory bodies that supervise the Big 4 firms:

The Big 4 Internal Quality Control System

The Big 4 internal quality control system is the set of policies that they follow to ensure their audit services meet the highest standards. 

For this purpose, Deloitte, PwC, EY, and KPMG usually have an Internal Audits department. It is responsible for evaluating risk management and other processes, including: 

• Improving the organization’s internal controls 
• Identifying the risk areas
• Mitigating the risk areas
• Ensuring compliance with the law
• Drafting SOP and RACM
• Testing IFC and SOX
• Data Analytics
• Verification of the inventory

(Source)

This system typically involves Big 4 own audit methodologies (based on international auditing standards and best practices). (Source)

These methodologies provide guidance for their audit teams to plan, execute, and report their work effectively. 

Each Big 4 player usually has advanced audit software to help with the audit processes. The software enhances their audit efficiency and effectiveness. They help the audit team to perform: 

• Data analysis
• Audit testing
• Evidence documentation
• Audit reporting.

I found that Big 4 regularly monitors their audits to check the quality of their own work. This helps them improve areas that are (somewhat) lacking. Due to the internal quality control system, Big 4 firms are able to meet the expectations of their clients, investors, and stakeholders.