You got a quote from a big firm and read it twice: what exactly does this price include?

Hook

Boss, you have probably heard the phrase "the Big Four". You may also have received a quote from a big firm, read it twice, and thought: this price… what exactly does it include? Three minutes today to settle two things: who the Big Four are, and what big firms actually do and do not do.

Who the Big Four are

The four largest firms in the world's accounting profession are known in the trade as the Big Four: Deloitte, PwC, EY and KPMG. They are not one company, they are networks — each country has its own member firm, separately licensed and separately responsible. So in Malaysia, the contract you sign is not with a global headquarters, it is with the local member firm. Fifth is generally acknowledged in the trade to be BDO. Below that sits a whole row of international networks: Grant Thornton, RSM, Baker Tilly, Crowe, Forvis Mazars, Moore, Nexia, Kreston, HLB, PKF, UHY. The top twenty or thirty is broadly those names in rotation.

Big firms do not keep your books

Now the crux. A lot of bosses assume that engaging a big firm means somebody is keeping their books. The opposite is true. Big firms mostly will not do your bookkeeping — particularly when they are also your auditor. The reason is not laziness, it is independence: auditing books you prepared yourself is what is called self-review. Under the Malaysian Institute of Accountants' code of ethics that is to be avoided, and where the client is a public interest entity it is expressly prohibited. So the flow runs like this: you keep the books, you produce the financial statements, they audit them. What the auditor audits is financial statements prepared by management. Responsibility for those statements sits, in law, with the directors — not with the auditor.

What the quote does not contain

Understand that and the quote starts making sense. An audit quote usually covers the audit only. The following are mostly a separate scope at a separate price. One, preparing the financial statements. Plenty of SMEs have nobody who can produce a full set, so either somebody else is engaged for it, or an unrelated firm prepares them. Two, group consolidation. If you have subsidiaries, consolidating is not adding two statements together: intercompany transactions have to be eliminated, equity unpicked and non-controlling interests computed. That is its own piece of work. Three, internal audit. Internal audit looks at your company's internal processes and controls, which is a different thing from the external audit — and often the same firm cannot do both sides. Four, IT audit. System access rights, data integrity, who can amend a document — that needs a different set of people and is usually a separate contract as well. Add tax, transfer pricing and valuation, and each of those can be its own scope too.

So what does an SME do

Which raises the question: who keeps the books? The big firm will not, and you do not have the headcount — and that is where a lot of bosses get stuck. The answer is actually simple: bookkeeping and audit were always meant to be two different sets of people. An unrelated firm gets the books tidy and the statements prepared, and the auditor can audit them as received — fewer hours, and a fee that becomes negotiable. That is not a detour. That is what the system was designed to look like.

To close

So next time you read a quote, ask three questions first. Does this price include preparing the statements? Does it include consolidation? Are internal audit and IT audit in scope? Ask those and you are at least comparing the same thing. Grab a coffee first and talk about your business. For the accounting, come to LTT. I am LTT, helping SME bosses get their accounts straight. Follow us, and see you next time.