Buenos Aires - 16 October 2006

Globalization will drive future consolidation among smaller firms.

Forecasts an increase of revenues of 12.5% for FY2007

William G. Parrett, Global CEO, Deloitte Touche Tohmatsu, in releasing the Deloitte Touche Tohmatsu Worldwide Member Firms 2006 Review, announced US$20 billion aggregate member firm revenues for fiscal year 2006, which represents a growth rate of 11.5 percent in local currencies. He also made it clear that more consolidation and change within professional services is likely as mid-sized firms strengthen their capability and capacity, so as to expand their base of globalizing clients. Mr. Parrett made his comments as he welcomed more than 500 new partners of Deloitte member firms in Buenos Aires.

All service offering groups—audit, tax, consulting, and financial advisory services— contributed to the organization’s strong financial performance. Considerable revenue improvements were recorded for tax, which rebounded from FY2005. Other service offerings by member firms, like forensic and dispute services, had a particularly strong year.

The annual review addresses various issues currently being debated across capital markets that consider how best to meet investor demand for reliable and timely financial data.

The CEO of Deloitte said, “One current debate frequently confuses competition and concentration. Concentration has allowed the firms to increase their size and scale resulting in improved audit quality, and actually more capable firms to choose from for companies of varying sizes and stages of development. Even among the largest and most global of companies, the market choice is better than it was before the Big Eight firms consolidated in the nineties.”

He continued, “Competition is rife among the very large networks, the result of their similar size, scale and financial strength, as is the case in other segments of the market. There might be consolidation, but competition is strong.”

According to Mr. Parrett, consolidation will continue to occur among the small and medium-sized firms, driven again by client demand, the same market influence that drove consolidation among the biggest firms over the past couple of decades.

“As small to medium-sized businesses, as well as national enterprises, continue to regionalize and globalize, the medium-sized professional services firms, and this includes the largest of these, will find ways to build their capability. This means more consolidation, which will be good for audit quality and the reliability of financial information,” Mr. Parrett said.

Mr. Parrett also dismissed arguments that the Big Four should be broken up, suggesting instead ways to enhance competition among the largest firms and in the long term, provide more choice. These include: changing independence rules that can act as inhibitors; promoting principles-based accounting, reporting, auditing and oversight systems; ensuring a reasonable level of security for audit firms; and fostering career development for auditors by maintaining multiple service offerings by firms.

Increase of revenues of more than 10% in 2006

The Deloitte Touche Tohmatsu Worldwide Member Firms 2006 Review revealed greater aggregate member firms revenue growth across geographies, services, and industries. The financial services industry, consumer business, and manufacturing were the strongest industry sectors for the member firms, accumulating in aggregate 21 percent, 19.8 percent, and 15.8 percent of the market, respectively.

FY2006 was the fourth consecutive year of double-digit revenue and the 13th consecutive year of growth.

Each region in aggregate grew by at least 10 percent, before the effect of currency exchange. North America grew by 12.5 percent. Central and South America grew by 24.1 percent. The synergies achieved through the new cluster of practices in Latin America contributed to this growth. In Europe, aggregate member firm revenues grew by 10 percent, while revenues in the Commonwealth of Independent States grew by 63 percent. Asia Pacific/Japan grew at just over 11 percent.

2007 projections

For 2007, Mr. Parrett predicted even stronger revenue growth. “The plan is to grow aggregate member firm revenues 12.5 percent next fiscal year, but on the basis of a continued strong global economy, they should exceed this,” he said. Deloitte is on track to do this. In aggregate, member firm services, like financial advisory, and consulting are exceeding targets, growing at approximately 20 percent and 17 percent, respectively. Tax is also exceeding expectations, growing at more than 12 percent.

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