EY plans to separate audit work as part of industry restructuring | EY

EY plans to spin off its auditing business, working toward the biggest change in one of the UK’s four largest accounting and consulting firms in decades after a series of high-profile corporate meltdowns including Carillion and BHS.

The company’s senior partners – formerly known as Ernst & Young – are drafting plans for a voluntary division of the firm’s auditing and advisory divisions, which was first reported by Michael West Media.

The move comes after a series of accounting scandals and company failures, and the push for an overhaul of the sector to address potential conflicts of interest in the big four accounting groups – EY, KPMG, PwC and Deloitte.

The pop-up scrutiny will mark a new turn for EY, whose former CEO Mark Weinberger has fiercely resisted calls to break up the Big Four due to a lack of competition in 2018. The move could prompt other companies to follow suit.

Companies have come under intense scrutiny for their audit of the company and have been accused of lack of independence because they also generate millions of pounds in fees from advisory, tax and advisory deals.

It comes two years after the Financial Reporting Council, the industry regulator, told the Big Four that it expected them to separate the audit divisions from the rest of their operations by June 2024.

EY, which employs 312,000 people in more than 150 countries, said: “We routinely evaluate strategic options that may enhance EY’s business in the long-term. Any significant changes will occur only in consultation with regulators and after a vote by EY partners.

“We are in the early stages of this assessment, and no decisions have been made.”

The split would require a vote by EY’s partners, and approval from the national member firms that make up its global business.

Last year, EY was fined more than £2.2m by the UK’s accounting watchdog for failing to properly challenge Stagecoach chiefs when auditing their accounts for 2017.

The accounting and consulting group is also under investigation by an audit committee over its audits of failed travel company Thomas Cook, as well as former FTSE 100 hospital group NMC Health and investment firm London Capital & Finance, which collapsed amid allegations of fraud. .

After the collapse of British retailer BHS and government contractor Carillion, the Big Four were forced to implement an operational separation of audit and advisory functions in the UK, but EY’s move will go further, creating two separately owned companies.