How PwC, Deloitte, EY, and KPMG Have Struggled with Scandals, Expansion, and Oversight Failures
Introduction
Auditors play an essential role in the global financial system, ensuring that corporations adhere to regulations and maintain transparent, trustworthy financial records. For decades, the world’s biggest audit firms—PricewaterhouseCoopers (PwC), Deloitte, Ernst & Young (EY), and KPMG—have stood at the forefront of this industry. However, in recent years, these giants have been marred by scandals, fines, and widespread accusations of malpractice. Once trusted pillars of the corporate world, they are now often in the headlines for failing to detect or even condoning fraud.This article explores the factors behind the growing number of scandals in the audit industry. It looks at how expansion pressures, internal conflicts, and regulatory hurdles have eroded the reputation of the once-revered Big Four firms. Ultimately, the narrative reveals how these massive organizations have struggled to maintain quality, oversight, and accountability in an ever-changing global market.
The Rise and Fall of PwC: A Historical Perspective
PwC’s legacy can be traced back to Edwin Waterhouse, who gained prominence in the late 19th century for exposing fraudulent activities during Britain’s railway mania. Waterhouse, along with other Victorian accountants, was celebrated for their role in uncovering corporate fraud. This laid the groundwork for what would become one of the largest and most respected auditing firms in the world. Fast forward to today, PwC, now known as PricewaterhouseCoopers, has transformed into a global accounting and consulting powerhouse. However, it is increasingly making headlines not for unearthing fraud but for failing to detect it—or, in some cases, engaging in it.Between 2010 and 2023, PwC faced fines and settlements amounting to approximately $450 million due to a series of botched audits and ethical lapses in multiple countries. This mounting pile of penalties has severely tarnished the firm’s reputation. Notably, the firm's founder, Edwin Waterhouse, might find it ironic that the institution he helped build is now synonymous with the kind of misconduct he once fought to expose.
The Evergrande Scandal: A Modern-day Debacle
PwC’s latest scandal unfolded in September 2023 when Chinese authorities fined its affiliate, PwC Zhong Tian, a record-breaking $62 million and banned it from conducting business for six months. The charge? The firm had either "concealed or condoned fraud" in the accounts of Evergrande, a colossal property developer in China. Evergrande had inflated its revenue by almost $80 billion in the two years leading up to its collapse in 2021. The Chinese government’s punishment was swift and severe, causing many of PwC’s major mainland clients to abandon its auditing services.The fallout was not limited to mainland China. Evergrande was also listed in Hong Kong, and Hong Kong’s accounting watchdog has launched its own investigation into PwC’s role in the scandal. The Evergrande debacle has highlighted a worrying trend within PwC: the firm's apparent inability to manage fraud in high-stakes environments. PwC’s new global boss, Mohamed Kande, admitted that the firm's work on Evergrande fell well below expectations, labeling it as "completely unacceptable." Despite the termination of six partners and five other staff members, as well as the resignation of the top partner in China, PwC's reputation has been deeply stained. A crisis manager from PwC’s London office has since been installed to clean up the mess, but the damage is done.
A Growing Trend of Scandals
The Evergrande incident is far from an isolated case. The broader professional services industry, dominated by the Big Four—PwC, Deloitte, EY, and KPMG—has experienced a dramatic uptick in scandals over the past decade. Since 2019 alone, the Big Four have been fined or settled multimillion-dollar cases at least 28 times for misconduct related to past audits. In the five years leading up to 2019, that figure was just four.Several factors are contributing to this surge in scandals. First, regulators are becoming more stringent in their oversight. This is a positive development, though some argue it’s long overdue. But increased regulatory scrutiny is not the only cause. The scandals have coincided with a period of rapid growth for the Big Four, which has put immense strain on their operations and structures.
The Risks of Rapid Expansion
The size and scope of the Big Four firms are staggering. Together, they audit the financial statements of nearly all major corporations in the U.S. and Europe, while also offering advisory services on everything from mergers and acquisitions to digital transformation. Their collective revenue ballooned from $134 billion in 2017 to $203 billion in 2022. Their employee numbers have exploded as well, rising by 500,000 over the same period to reach a staggering 1.5 million employees in 2023.
PwC, for instance, hired an astonishing 130,000 people in 2023 alone—more than its entire workforce back in 2002. However, this rapid growth has come at a cost. With such a high rate of employee turnover (94,000 left PwC in 2023), many employees view the firm as a stepping stone rather than a long-term career destination. This transient workforce undermines the firm's ability to maintain consistent standards and uphold its reputation.
The pressure to grow has also created incentives for employees to cut corners. Entry-level auditors at the Big Four typically earn around $60,000 per year in the U.S., compared to about $100,000 for young consultants at firms like McKinsey or Bain. While partners at the Big Four enjoy significant financial rewards, the road to partnership is paved with intense pressure to generate revenue and close deals. As one former Big Four employee in China noted, “You don’t make partner because you are a good auditor. You make partner because you close deals.” This emphasis on revenue generation rather than auditing quality has inevitably led to compromised ethics and decision-making.
Challenges in Emerging Markets
The problem is particularly pronounced in emerging markets, where corporate governance is often weaker and regulatory oversight more relaxed. In these regions, the temptation for auditors to look the other way when fraud occurs can be stronger, and employee turnover is even higher as workers often jump ship for modest pay raises. Given that a growing share of the Big Four’s revenue comes from developing countries, the potential for scandals will likely increase. For example, two-thirds of EY’s global network is based outside wealthy nations, making it harder for the firm to maintain consistent standards across its sprawling empire.As the Big Four continue to expand into riskier markets, their ability to effectively manage audit quality becomes even more challenging.
A Decentralized Structure: A Blessing or a Curse?
One of the core structural problems facing the Big Four is their decentralized, franchise-like business model. Each firm operates as a network of independent national partnerships, making it difficult for global leaders to enforce consistent standards or maintain oversight across the entire organization. PwC’s global boss, Mohamed Kande, for instance, cannot directly oversee every affiliate in every country, leaving plenty of room for lapses in quality and integrity.This decentralized model also makes it hard for the Big Four to implement sweeping reforms. While some industry insiders have suggested that these firms should adopt a more top-down structure, such a move is legally impossible in many jurisdictions. National laws in many countries require audit firms to be domiciled locally and owned by local citizens, limiting the scope for centralized control.
Proposals for Reform
Given these structural challenges, what can be done to restore trust in the Big Four? One option is for these firms to split their fast-growing consulting arms from their auditing operations. This was something EY considered in 2022 before American partners backed out of the plan. There is a strong commercial logic to such a split: it would allow consulting divisions to focus on technological innovations like artificial intelligence, while enabling audit-focused networks to zero in on improving audit quality. While splitting the firms would be difficult, it may become necessary if they are to maintain their credibility.Another potential solution is for regulators to loosen the rules that prevent auditors from appointing independent directors to their boards. Current regulations bar audit firms from recruiting independent directors with ties to their clients. However, given that the Big Four serve many of the world’s leading companies, these restrictions exclude a vast pool of experienced business figures who could offer much-needed external oversight.
Conclusion
The Big Four auditing firms—PwC, Deloitte, EY, and KPMG—are at a crossroads. On one hand, their meteoric growth reflects the rising demand for professional services worldwide. On the other hand, this expansion has brought with it a litany of scandals, fines, and ethical failures. From the Evergrande debacle to a broader trend of botched audits, the industry’s credibility is under siege.
To restore trust and maintain their dominance, the Big Four must confront the structural flaws and internal pressures that have driven them into scandal. Whether through splitting off their consulting arms, adopting more rigorous internal
