EY is working to split its audit and consulting operations worldwide in the Big Four shake-up of an accounting firm in two decades, according to three people familiar with the plans.
The proposal, which is still rejected by EY’s senior partners, is a bold attempt to avoid conflicts of interest that haunt the industry and impose regulatory action by the United Kingdom in the United States.
EY and the other Big Four accounting groups that dominate the global industry – Deloitte, KPMG and PwC – have been fiercely criticized for their alleged lack of independence in auditing company accounts due to fees they also generate from consulting, tax and transaction. work.
A voluntary break-up would be a drastic change of position on the part of EY, whose former global CEO Mark Weinberger addressed in 2018 calling for the Big Four to be split amid fears of lack of competition.
The companies rebuilt their consulting divisions after initially selling them after the collapse of the American energy company Enron in 2001, which led to the death of auditor Arthur Andersen and reduced the Big Five to the Big Four.
EY’s senior partners are discussing their options for restructuring their global operations, said three people familiar with the matter.
The plans call for an audit-focused firm to be separated from the rest of the business, people said. This company will retain experts in areas such as taxes to support company audits, said one of the people.
EY’s surprise move is likely to attract significant regulatory scrutiny and force its rivals to consider further action.
“We will all have to reconsider our position, but it will not be quick or shocking,” said a senior partner in another Big Four company, adding that the reaction of regulators will affect the responses of other groups.
The spin-off of EY would lead to two separate businesses and would be a much bigger change than the more limited operational unbundling of the UK’s audit and advisory functions in the UK, which was agreed following corporate scandals at retailer BHS and contractor Carillion .
The exact structure of the shake-up is being discussed, one person said, and any major repairs will require a partnership vote and broad consent from the individual national member firms that make up EY’s global business. The potential split was first announced by Michael West Media.
It is well known that mergers and acquisitions within professional service companies are difficult to implement due to the need to build consensus between the individual partners who own and manage the business in each country.
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EY, which employs 312,000 people in more than 150 countries, is structured as a network of legally separate national member firms that pay a fee each year for shared brand, systems and technology.
The company’s executives are trying to find a precise structure that “works for everyone,” one man said.
The process could take “many months” and it is still uncertain that dramatic restructuring will continue, the man added, but acknowledged that the changes would be significant if voted on.
“We want to take the profession a new path,” the man said. “We realize that this will change the profession.”
EY said: “Any significant changes will only take place after consultation with regulators and after a vote by EY’s partners. We are in the early stages of this assessment and no decisions have been made. “
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