EY plans to conduct a thorough audit of a radical changeover for the Big Four
EY is splitting its audits and advisory operations worldwide in the biggest change to the Big Four accounting firm in two decades, according to three people familiar with the plans.
The proposal, which is still being floated by EY’s top partners, is a bold attempt to escape the conflicts of interest that have crippled the industry and led to regulatory action from the UK to the US.
EY and the other big four accounting groups that dominate the industry globally – Deloitte, KPMG and PwC – have come under fire for a perceived lack of independence in auditing the company’s accounts due to the fees it also generates from advisory, tax and deals. work.
The voluntary collapse could be a sharp change of heart for EY, whose former global chief executive, Mark Weinberger, in 2018 criticized calls for a split of the Big Four over concerns about a lack of competition.
The companies have rebuilt their advisory arms since they were initially sold after the collapse of US energy company Enron in 2001, leading to auditor Arthur Andersen’s demise and downgrading the Big Five to the Big Four.
EY’s senior partners discussed their options for restructuring its global operations, according to three people familiar with the matter.
People said the plans envision an audit-focused company being separated from the rest of the business. One person said this company will retain experts in areas like taxation to support the company’s audits.
EY’s sudden move is likely to attract significant regulatory scrutiny and will force its competitors to consider taking the same approach.
“We will all need to revise our position, but it won’t be quick or choppy,” said one senior partner at another Big Four, adding that the regulator’s reaction would affect responses from other groups.
Splitting EY into two separately owned companies would be a much bigger change than the limited operational separation of the UK’s Big Four’s audit and advisory functions, agreed after the corporate scandals at retailer BHS and outsourcing Carillion.
One person said the exact structure of the change process is being discussed, and any reform would require partner voting and broad approval from the individual national member firms that make up EY’s global business. The potential split was first reported by Michael West Media.
Mergers and acquisitions within professional services firms are known to be difficult to implement due to the need to build consensus among the individual partners who own and operate the business in each country.
EY, which employs 312,000 people in more than 150 countries, is organized as a network of legally separate national member firms that pay fees each year for co-brands, systems and technology.
One person said the company’s leaders are still trying to find an exact “one size fits all” structure.
The person added that the process could take “several months” and it was not yet certain that the dramatic restructuring would take place, but acknowledged that the changes would be significant if they were voted on.
“We want to lead the profession on a new path,” the person said. “We know it will change the profession.”
EY said: “Any significant changes will only happen in consultation with the regulators and after the EY partners have voted. We are in the early stages of this assessment, and no decisions have been made.”