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1 Business & Company Resource Center Datamonitor Industry Market Research, Oct 15, 2009 pna United States - Accountancy. Full Text: COPYRIGHT 2009 Datamonitor MarketDefinition The accountancy market consists of all revenues generated by firms engaged in designing, preparing and auditing accounting records. Income from assurance, tax and other accounting related fields like developing budgets, preparing tax returns; processing payrolls, bookkeeping, and billing have also been included. For Japan, the market covers certified public accountant firms only. Any currency conversions used in the creation of this report have been calculated using constant 2008 annual average exchange rates. For the purpose of this report the global figure is deemed to comprise of the Americas, Asia-Pacific and Europe. The Americas comprises Argentina, Brazil, Canada, Chile, Colombia, Mexico, Venezuela, and the US. Europe comprises Belgium, the Czech Republic, Denmark, France, Germany, Hungary, Italy, Netherlands, Norway, Poland, Romania, Russia, Spain, Sweden, the Ukraine and the United Kingdom. Asia-Pacific comprises Australia, China, Japan, India, Singapore, South Korea and Taiwan. ResearchHighlights *The US accountancy market generated total revenues of $103.7 billion in 2008, representing a compound annual growth rate (CAGR) of 5% for the period spanning *Audit sales proved the most lucrative for the US accountancy market in 2008, generating total revenues of $55.5 billion, equivalent to 53.5% of the market's overall value. *The performance of the market is forecast to decelerate, with an anticipated CAGR of 1.2% for the five-year period , which is expected to drive the market to a value of $109.8 billion by the end of 2013.

2 MarketAnalysis A gradual deceleration in growth across the US accountancy market in recent years left it vulnerable to the downturn in 2009 and a significant dip in value is expected. Recovery and a quick return to growth is forecast for the subsequent year. The US accountancy market generated total revenues of $103.7 billion in 2008, representing a compound annual growth rate (CAGR) of 5% for the period spanning In comparison, the European and Asia- Pacific markets grew with CAGRs of 3.5% and 6.7% respectively, over the same period, to reach respective values of $93 billion and $30.8 billion in Audit sales proved the most lucrative for the US accountancy market in 2008, generating total revenues of $55.5 billion, equivalent to 53.5% of the market's overall value. In comparison, Tax related sales generated revenues of $26.3 billion in 2008, equating to 25.4% of the market's aggregate revenues. The performance of the market is forecast to decelerate, with an anticipated CAGR of 1.2% for the five-year period , which is expected to drive the market to a value of $109.8 billion by the end of Comparatively, the European and Asia-Pacific markets will grow with CAGRs of 1% and 4.5% respectively, over the same period, to reach respective values of $97.6 billion and $38.3 billion in Value The United States accountancy market grew by 2.4% in 2008 to reach a value of $103.7 billion. The compound annual growth rate of the market in the period was 5%. United States Accountancy Market Value Unit: USD Year Value Growth % % % % CAGR % Segmentation Audit segment generated 53.5% of the United States accountancy market's overall value.

3 Tax segment generated 25.4% of the market's revenues. United States Accountancy Market Segmentation Year: 2008 Category Percentage Audit 53.5% Tax 25.4% Advisory 21.1% Segmentation The United States contributes 38.7% of the global accountancy market's overall value. Europe accounts for a further 34.7% of the global market revenues. United States Accountancy Market Segmentation Year: 2008 Geography Percentage United States 38.7% Europe 34.7% Rest of the World 15.1% Asia-Pacific 11.5% CompetitiveLandscape The accountancy market will be analyzed taking accountancy firms as players. The key buyers will be taken as companies and individual consumers, and software providers, IT and office supplies as the key suppliers. Buyers can vary in size but include many medium and large businesses, which strengthens buyer power considerably. The "big four" accountancy firms are established in this market, alongside some second-tier and smaller players. The complex accounting and auditing needs of the most lucrative clients weaken buyer power. IT and skilled employees are important inputs in this market, and supplier power is boosted. Healthy market growth encourages market entry and tends to weaken rivalry to some degree, despite the difficulty of competing with the largest players. Buyers can vary in size but include many medium and large businesses, which strengthens buyer power considerably. For businesses, the service is a necessity. For example, most companies will be legally required to engage independent auditors, and Sarbanes-Oxley has increased the demands on corporations for financial reporting. These legal obligations weaken buyer power. Four major players dominate the accountancy market: PriceWaterhouseCoopers, KPMG, Deloitte Touche Tohmatsu, and Ernst & Young.

4 There is therefore arguably quite limited choice of player for the largest corporate clients, as they will tend to need accountants that can offer a wide range of competencies. The US is home to some of the world's largest corporations. A multinational client will need guidance on the tax regimes in all the countries it operates in, for example. Also, to maintain investor confidence, a corporation needs to engage an accountancy firm with a high reputation for probity, which may tend to favor the more established majors. Switching from a "big four" auditor to a smaller player may be viewed negatively by the capital markets - however unfairly - and it may be advantageous to retain one accountancy firm, which has a deep understanding of the client business, rather than switching. These factors weaken buyer power. Buyer power is strengthened by the fact that accountants as such can rarely integrate forwards into their clients' businesses, while clients can carry out some accounting functions inhouse. Overall, buyer power is moderate. Suppliers in the accountancy market consist of specialized accountancy software publishers. These provide computer software that records and processes accounting transactions. This is a necessity for most accounting firms, and varies in its cost and complexity. Furthermore, large accountancy firms need more specialized technology, and therefore rely on a limited range of suppliers to provide this. However, the wide range of low end and high end products on offer, such as ERP software, weakens supplier power. Other suppliers to accountancy firms will include manufacturers of PCs and office equipment. Accountancy firms require a reliable ICT infrastructure in place and therefore often commit to one suppliers product as they do not want to spend the money training staff on new software, again putting suppliers in a strong position through high switching costs. It is also vital for players in this market to recruit and retain highly skilled employees. Changing the labor supply (that is, experiencing staff turnover) incurs switching costs. This is not just the one-off expenditure needed to recruit replacements, but also the amount spent on training and development of staff, which is not recovered when an employee moves on, and may in fact benefit a competitor that takes on the same person. Overall, supplier power is moderate to strong. Market revenues have been boosted in recent years by the need for Sarbanes-Oxley compliance, which should increase the attraction of the market to new players. It is possible for small-scale market entry by a suitably qualified accountant setting up in business. However, smaller accountancy firms will find it difficult to provide the broad range of expertise needed to handle the audit and advisory needs of large companies with complex business operations. The big four firms have a strong market position.

5 They hold the majority of the large public corporation auditing segment. Such clients will find it difficult to switch to smaller accountancy firms. However, there are other market segments available to new players, and overall the likelihood of new entrants is assessed as strong. While there are no obvious substitutes for the functions offered by accountants, specialized accountancy firms do face the threat of substitutes. For private individuals, "DIY" accounting is often a possibility. This substitute avoids costs in terms of fees paid to a thirdparty accountant, but may incur other costs, such as the time absorbed by the process, and the greater possibility of mistakes being made. There may also be switching costs, such as the need to purchase appropriate software. In a similar way, corporate clients can carry out many accounting processes in-house. However, for companies with complex business operations, perhaps covering several tax- and reporting jurisdictions, the costs of maintaining a suitably skilled in-house team will rise. Also, the important function of auditing cannot by its nature be performed in-house. Due to high levels of competition and a shortage of qualified accountants in the US, many companies are using offshore resources in countries such as India for their tax returns. Overall, the threat of substitutes is weak. The big four firms have a significant presence in the US, especially in the large public company auditing segment. However, there are also many smaller firms, which increases rivalry. This is enhanced by the fact that many players are very similar to each other. Even for large firms that have diversified beyond accountancy into areas such as corporate advisory, accountancy is quite central to the business of most players in the market. Further, although accountancy firms have few specialized physical assets to dispose of, their staff will tend to have specialized skills. Exiting the accountancy market would therefore incur costs: IT systems could be redeployed in another business area, but laying off a large staff and recruiting a new one with different skills is not a trivial exercise. Healthy revenue growth weakens rivalry to an extent, but it is assessed as moderate overall. This section contains brief overviews of the leading companies in the United States accountancy market. Company Deloitte Touche Tohmatsu Deloitte Touche Tohmatsu is an organization of member firms around the world, providing a broad range of professional services including audit, tax, consulting and financial advisory services. The company operates in nearly 150 countries through 70 member firms. The company serves

6 national and middle market enterprises, public institutions, privately owned companies and public sector organizations. It provides its services to all major sectors including aviation and transport services; consumer business, energy and resources, financial services, life sciences and health care, manufacturing, public sector and technology, and media and telecommunications. The separate units of the company are Deloitte & Touche; the US accounting arm; and Deloitte Consulting. Deloitte's services can be categorized into four broad functional areas: audit, consulting, tax and advisory services. Deloitte's audit services segment offers audit technology, addresses new regulatory requirements, incorporates multiple generally accepted accounting principles (GAAP) compliance, and facilitates the auditor's understanding of business processes, controls, and risks. Its core competencies encompass risk management, capital markets, control assurance, internal audit, regulatory consulting, and security and privacy services. The consulting services of the company range from strategy formulation to technology implementation. It also offers industry and functional business performance knowledge. The company has consulting alliances with leading companies such as 3M Company, BEA Systems, HP, IBM, Oracle Corporation, SAP, Siemens Medical Solutions USA and Sun Microsystems. The company's tax services include corporate tax, indirect tax, international assignment services, international tax, mergers and acquisitions (M&A) transaction services, research and development credits, tax technology solutions and transfer pricing. The company's Global Backbone is locally delivered, centrally coordinated global tax compliance and reporting service scalable to meet each client's specific needs. The advisory services are composed of four global service lines: corporate finance advisory, dispute consulting/forensic services, reorganization services, M&A transaction services, and valuation services. The corporate finance advisory unit provides M&A advice to corporate clients, private equity/venture capital firms, entrepreneurs and governments. It has 90 partners and more than 900 employees. Its main services include acquisitions and disposals; capital raising-private equity or capital markets; valuations; strategic and general corporate advice; and business modeling. The dispute consulting/forensic services range from litigation consulting provided locally and globally to forensic investigations encompassing fraud and accounting investigations. The reorganization services include lender solutions, restructuring services, corporate exit management and

7 insolvency services. M&A transaction services provide tax, accounting and advisory services in business combinations to buyers or sellers. Valuation services provide business valuation, intangible asset valuation, tangible asset advisory services, transaction advisory, and capital allocation. The company's Deloitte's Value Initiative has developed tools such as Deloitte's Enterprise Value Map (EVM), ValueAnalytics, ValuePrint and Project Portfolio Management. Deloitte's Enterprise Value Map (EVM) identifies business activities and illustrates how each should be aligned to four primary value drivers: revenue growth, operating margin, asset efficiency, and expectations. ValueAnalytics enables the financial analyses of key value drivers. ValuePrint is a business case development tool. The Project Portfolio Management tool assesses individual projects' effectiveness and contribution to value. The company recorded revenues of $27.4 billion during the financial year ended May 2008, an increase of 18.6% over Company Ernst & Young International Ernst & Young International (Ernst & Young) is a global firm that provides a range of services, such as accounting and auditing, tax advisory, tax reporting and operations, technology and security risk, human capital, business risk, and transaction advisory services. Ernst & Young also provides legal services in some countries. Globally, Ernst & Young focuses on the 13 major industry groups: asset management, automotive, banking and capital markets, biotechnology, consumer products, insurance, media and entertainment, oil and gas, pharmaceuticals, real estate (includes construction, hospitality and leisure), technology, telecommunications and utilities. Ernst & Young's service lines primarily consist of assurance and advisory business services, taxation, and transaction advisory services. The company's assurance and advisory business services encompass three services: assurance, which includes independent audit of company's financial statements and other attestation services; risk advisory services, which include advisory services for risk management; and finance and performance management services, which provides advisory services on finance function strategy, organization design and development, and operational effectiveness. Taxation covers personal, corporate and indirect tax and consulting services. The division's services include tax compliance assistance and review, tax compliance outsourcing, tax advisory services, and tax

8 department performance improvement. Transaction advisory services encompass services in relation to mergers and acquisitions, divestitures, strategic finance, corporate restructuring, business modeling, working capital management, and valuation. In addition to these services, Ernst & Young also offers assistance in protecting clients' IT assets from viruses, attacks, and internal security threats, as well as providing assistance with capital markets advice, taxeffective supply chain planning, compensation design, M&A planning and post-merger integration services, and legal advisory services. The company recorded revenues of $24,523 million during the financial year ended June 2008, an increase of 16.2% over Company KPMG International KPMG International (KPMG) is a global network of professional services firm providing audit, advisory, and tax services. The company has operations in 148 countries and more than 113,000 professionals working in member firms around the world. KPMG is a Swiss cooperative that operates as an umbrella organization for its member firms. It has organized its structure into three operating regions: Europe, Middle East, and Africa; the Americas; and Asia- Pacific. The company operates through three business divisions: audit, advisory, and tax. KPMG's audit division provides independent auditing services to companies. The company provides resources and technological tools necessary to support internal controls. KPMG has established the Audit Committee Institute (ACI) to provide resources to audit committee members and help them keep pace with evolving business issues related to governance, audit issues, accounting, and financial reporting. KPMG's advisory professional services provide advice and assistance to enable companies, intermediaries, and public sector bodies to mitigate risk and improve performance. It provides risk and financial advisory services to clients, which helps them create strategies for the longer term. KPMG's tax services offer services related to tax compliance and managing tax risks. KPMG's tax input is delivered through a number of global service lines. These include: business tax, international corporate tax and indirect tax. These services assist clients in fulfilling compliance responsibilities, planning opportunities, and communicating between

9 markets and regulators. The company recorded revenues of $22,690 million during the financial year ended September 2008, an increase of 14.5% over Company PricewaterhouseCoopers PricewaterhouseCoopers (PwC) is one of the world's largest professional services firms. PwC is an accountancy firm that provides services in three lines of business: assurance (including financial and regulatory reporting), tax, and advisory. PwC is one of accounting's Big Four, along with Deloitte Touche Tohmatsu, Ernst & Young, and KPMG. The company has operations in 150 countries spanning Europe, North America and the Caribbean, Asia, Australia and Pacific Islands, the Middle East and Africa, and South and Central America. The company's member firms offer services under six divisions: audit and assurance, crisis management, tax, transactions, human resources, and performance improvement. The audit and assurance division provides services in financial accounting issues related to matters such as valuations, pensions and share plans, listings, IFRS conversions, and corporate treasury and company secretarial functions. This division offers solutions related to Sarbanes Oxley and international financial reporting standards (IFRS). Under the crisis management division, PwC offers services related to business recovery, disputes and investigations. The company's recovery services range from turnaround and restructuring plans to exit strategies. Through the tax division, PwC assists businesses, individuals and organizations with tax strategy, planning, and compliance, whilst also delivering a range of business advisory services. The company develops comprehensive integrated solutions by combining industry insight with the technical skills of financial and tax specialists, economists, lawyers and other in-house experts. The company has 23,000 tax professionals in over 140 countries. The transaction division offers services related to a range of financial transactions such as mergers and acquisitions, corporate finance, and valuation and strategy. The human resource services division offers services across three core disciplines: international assignments, reward and HR management. The PwC network is one of the world's largest HR advisory organizations with more than 6,000 professionals in over 100 countries. The HR management includes Saratoga, one of the leaders in human capital

10 measurement, benchmarking and strategic application of human capital information. The performance improvement division focuses on financial effectiveness, IT effectiveness and governance, risk and compliance business operations of companies. The company recorded revenues of $28,185 million during the financial year ended June 2008, an increase of 14% over ForecastValue In 2013, the United States accountancy market is forecast to have a value of $109.8 billion, an increase of 5.9% since The compound annual growth rate of the market in the period is predicted to be 1.2%. United States Accountancy Market Value Forecast Unit: USD Year Value Growth % % % % % % CAGR % MacroeconomicData Population United States Size of Population Unit: Population Year Value Growth % % % % GDP United States GDP Unit: Real GDP (Constant 2000 Prices, $ billion) Year Value Growth

11 % % % % Inflation United States Inflation Unit: Inflation Rate % Year Value Article A Gale, Cengage Learning.