RECENT earnings announcements show that most of the Big 4 accounting firms are seeing an upsurge in the growth of advisory revenue this year, driven by demand sprouting from technology-driven change and disruption.

In some cases, the growth surpasses that of the staple segments of the audit firms, such as auditing and tax.

This earnings escalation, some Big 4 players say, is fuelled by the return of investment into technology as well as the rise in demand for risk and transformation advisory services. Another reason could be that the advisory segment is coming from a lower base, industry observers say.

At Ernst & Young (EY), the advisory service line delivered its sixth straight year of double-digit growth. For the financial year ended June 30, 2016 (FY2016), EY’s advisory earnings grew 13.1% and transaction advisory services grew 14.2%, outpacing the growth of bread-and-butter services such as assurance (4.8% growth) and tax (9.6% growth).

It recorded global revenue of US$29.6 billion for FY2016, up 9% year on year (y-o-y), with assurance contributing US$11.3 billion, advisory US$7.8 billion, tax US$7.8 billion and transaction advisory services US$2.7 billion.

“Artificial intelligence, robotics and the increased use of digital and data analytics are driving opportunity and growth across all of our service lines. Our transaction advisory services business was involved in eight of the 10 biggest mergers and acquisitions deals globally, as well as a number of initial public offerings,” EY says in a written reply to The Edge. “While our revenue was more organic this year, in FY2016, we made 26 acquisitions and signed seven global alliances with blue-chip companies. For instance, EY is working with GE Digital to develop industrial internet of things technologies, with Microsoft on digital adoption, and with LinkedIn on data analytics.”

“Going forward, a big part of our advisory and transactions businesses will be our ability to operate in line with continual disruption, either as companies look to get out of businesses where they are no longer relevant, or through convergence of businesses. All of these should provide good opportunities for growth,” EY says, adding that assurance remains its largest service line by revenue and headcount, and continues to be the backbone of its offerings.

EY has seen that the demand for greater global transparency has spurred growth in services related to the Organisation for Economic Co-operation and Development’s recommendations on base erosion and profit shifting (BEPS), as well as transfer-pricing work globally and increased cross-border activity.

“Our people advisory services business, a combination of consultants from our tax and advisory services launched last year, is also contributing to growth as clients are more actively looking for services to manage mobility, organisational and compliance issues,” says EY.

Deloitte also notes the trend of businesses seeking expertise to help them manage and benefit from technology-driven change and disruption.

“To meet this need, Deloitte is continuing to make strategic investments across its five businesses to enhance its industry-leading capabilities in areas such as cyber, M&A, analytics, crowdsourcing, artificial intelligence, cloud computing, digital and internet of things,” Deloitte says in a Sept 7 press release on its financial year ended May 31, 2016. It reported aggregate network revenue of US$36.8 billion, a year-on-year increase of 9.5%.

Deloitte adds that all of its advisory businesses posted double-digit growth globally. Risk advisory grew the most at 22.5%, driven by high demand for cyber and regulatory service. Consulting grew at 10.8%, fuelled by increasing demand for integrated services supporting large-scale digital transformation, systems implementation, human resources and strategy projects.

Meanwhile, PwC’s advisory operations also continued to deliver strong growth, increasing 8% to US$11.5 billion in FY2016. Advisory accounts for nearly one third of PwC’s revenues. 

“The growth in advisory is driven by the increased demand from clients for our strategy through execution services, with excellent growth across a broad range of consulting, forensics and deals-related work. Good growth in cybersecurity, digital and data and analytics services benefited from our significant recent investments,” notes PwC in its Global Annual Report 2016.

“More generally, the technology, retail and consumer, government, insurance and communications sectors experienced double-digit growth. We will continue to invest heavily in new technology-based client services in the year ahead,” it adds.

For FY2016 ended June 30, PwC’s gross revenue was up 7% y-o-y to US$35.9 billion.

“Technology continues to reconfigure the market for audit and assurance services, driving demand for broader assurance services such as IT, risk and data assurance — all areas where we continue to invest and innovate to provide the latest, most insightful and cost-effective solutions to our clients,” says PwC, adding that its assurance operations continued to grow strongly, increasing by 6% to US$15.3 billion y-o-y.

Meanwhile, KPMG saw its revenue from the advisory segment grow marginally by 0.11% y-o-y to US$9.1 billion for its financial year ended Sept 30, 2015, while audit dropped 4.1% to US$10.03 billion and tax increased 0.75% to US$5.31 billion. Its total revenue stood at US$24.4 billion, up 8.1% y-o-y.

In his chairman’s message for FY2015, KPMG International’s John Veihmeyer notes: “Clients are increasingly looking for us to work closely with their teams to develop solutions that deal with the accelerated pace of change, technology disruption and responding to new market entrants.”

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