Big 4, Meet 3DP

Eighty-seven percent of public corporations (87%) use one of the Big 4 audit firms according to FEI. These four firms, Deloitte & Touche LLP, Ernst & Young LLP, PricewaterhouseCoopers LLP, and KPMG, are depended on as the independent registered public accounting firms for both domestic corporations and those abroad. The due diligence of these firms is tantamount to the quality and expected integrity of annual financial statements submitted to the SEC for public disclosure each year.

The Big 4 of Today
The Big 4 of Today

In emerging industries, due diligence is especially important because of the aggressive personalities of young movers and shakers. The 3D Printing industry is attracting start-up companies that exude IPO characteristics both domestically and abroad. IDA Science and Technology Policy Institute published a report November 2013, which is great by the way, on companies vying for the top spot in this developing industry. Of the thirty-three companies identified thirty-nine percent were US based-firms. Twenty-four percent of these companies were German based .

So then, the question is, “of the Big 4, which of these firms are looking towards the 3D Printing industry?”

Analysts are providing a vast amount of supportive and speculative coverage due to the exciting volatility and uncertainty that is sure to release the endorphins of short-term investors. Growth is being documented, and with particularly attractive compounded growth rates even through The Recession, what’s not to love? Perhaps though, to entertain a more conservative perspective, one should consider if the future independent auditors of these companies are beginning to build rapport. And in fact, they are.

It looks that the largest spokesperson of the 4 firms is Deloitte. Together with 3D Systems, Deloitte  offered in July 2013 to “jointly assist companies and industries adopt and integrate 3D printing design and manufacturing systems and solutions into their business for sustainable competitive advantage” (source). This multi-year strategic alliance gives support to the industry as it straightens its posture. An interesting benefit that the consulting clients of Deloitte will reap will be the knowledge gained from relationships like this, and better implement it to their clients. The Boeing Company (BA) is one of the largest proponents of 3D Printing and happens to be a client to none other than Deloitte & Touche LLP. (Please note that just because attestation is being performed by one, does not necessitate that consulting is performed by the same. However, the carryover is obvious.)

Deloitte clients in electronics and retail, manufacturing and design, technology, and others can largely benefit.  3D Printing knowledge gained will be attractive to companies such as Best Buy Co Inc, Callaway Golf Company, Innovative Solutions & Support Inc, Lincoln Educational Services Corp, Microsoft, Toys “R” Us, Tyco, and many more in many other industries.

Pricewaterhouse Coopers LLP (PwC) also has published information in May of this year on the possibilities and application of the technology, specifically for aerospace and defense. As PwC recognizes, “there is little to no scrap and parts can be produced remotely,” and continues, “3D printing significantly relaxes the geometric design constraints imposed by traditional production technologies” (source). This is great recognition, and so well worded (!), made by PwC’s Advisory practice.

PwC did not have a specific client listing, but did have a percentage base of the Fortune Global 500 in their 2013 Annual Review. It would be nice if Mr. Robert Swaak had this list up, or better yet, share thoughts on the relationship between clients and the 3DP market. I will only provide a surface test for where applicability lies, but of their total 1,120 clients listed over thirteen industries, at least six industries can gain from comprehensive knowledge or advisory insight into the 3D Printing industry. This sums to just over 46% of their total clients that can potentially gain. Because the total client base is well diversified with a simple average of 8% of the total being represented by any particular industry, let’s take a quite arbitrary 8% that can begin to apply 3D Printing to these six industries today. Even still, that 8% of 516 clients over six industries amounts to 40 companies that could benefit BEFORE an application standard has been found for the technology across industries.

Ernst & Young LLP (EY) did mention 3D Printing indirectly in their M&A Update stemming from the $403 equity funded acquisition of Makerbot Industries LLC by Stratasys Ltd in Q3 2013. Even if they have not clearly expressed awareness, this knowledge inevitably leads to relating thoughts.

KPMG does not have any direct literature on the website yet. There are a number of Twitter posts and Facebook mentionings, but nothing profound. This can’t stick much longer, especially from a forward-looking standpoint if KPMG wishes to be a lead auditor on these companies if and when they do gain prominence. This is another interesting point and likely largely intelligent foresight by Deloitte to partner vocally with a prominent additive manufacturing company at this stage in industry life cycle.

As we approach the end of this observation, it is relevant to see who some of the 3D Printing companies, or companies that will be engaged in the industry in the future, are audited by.

Line break represents direct 3DP companies and indirect or future 3DP companies.
Line break represents direct 3DP companies and indirect or future 3DP companies.

Currently, none of the three US publicly traded companies are audited by one of the Big 4. I am curious to see where this will stand in two years. From the perspective of the Big 4, this is an opportunity. From the perspective of firms such as BDO and Grant Thorton, this can further help these firms be competitive if they can gain other clients in the space. At face, it appears as though KPMG, Deloitte, EY, and PwC simply have not been approached yet and have not reached out to these firms. If this industry does gain traction in the coming years, I expect this number to shift. Otherwise, the perception of the Big 4 itself may see a shift. May we be reminded that at one time we had the Big 8, and shifts in accounting prowess are not unchangeable.

I feel that I must add, with accounting in my soul through my LMU experience, an objective note on the relationship between client and auditor. Conflict of interest between the corporation and independent auditor is intuitive due to the audit fee structure, firm selection process, and audit rotation standards in place. And while the profession is taking proactive steps to consider and even resolve this, today, simple trust is fundamentally at the center of the profession. These auditors are for profit, and in order for them to remain successfully in business, they must look towards industry growth in order to understand the nature of future clients and regulatory framework, but also to add diversity and base to their client community. Again, the implications of conflict of interest is apparent and it often goes unsaid. I feel the responsibility to at least acknowledge the notion as opposed to ignore it.

Now, how has our question, “of the Big 4, which of these firms are looking towards the 3D Printing industry” been addressed?

Well, the Big 4 accounting firms have not acknowledged in solidarity that this industry will change the world. Two of the four have published reports on the 3D Printing industry. None of the four have claimed a 3DP client just yet. BUT, it is clear that many of the clients of these companies will largely benefit from the consulting and advisory services offered by the Big 4. If I were a decision maker outside of the Big 4, I would see opportunity. There was a time when the auto industry was not listed in the census of manufacturers under its own heading (source). If the 3D Printing industry does soon have its own industry classification, then I would position myself to be the lead auditor for this client type. To go a step further, I would beef up my consulting now to see how this technology inevitably will apply to a vast array of my clients. The simple fact that students  are writing pieces like this over their winter break means that 1) there are those thinking about and anticipating problems and solutions, and 2) that younger students, offbeat enthusiasts, innovation teams, and all walks are doing similar analysis and breakdown to promote, advance, and understand this industry.

This piece written by Evan Modiste, 3D4M.

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