EY is working on a division of its audit and advisory operations worldwide into the largest transformation of a Big Four accounting firm in two decades, according to three people with knowledge of the plans.
The proposal, which is still being rejected by EY’s senior partners, is a bold attempt to escape the conflicts of interest that have plagued the industry and brought regulatory action by the UK to the US.
EY and the other major accounting groups that dominate the industry worldwide (Deloitte, KPMG and PwC) have been harshly criticized for a perceived lack of independence in their audit of the company’s accounts due to the they are also generated by consulting, tax advice and agreements. work.
A voluntary break would be a sudden change of position by EY, whose former global CEO Mark Weinberger responded in 2018 to calls for the Big Four to split over concerns about a lack of competition.
Companies have rebuilt their consulting weapons since they first sold them after the collapse of US energy company Enron in 2001, which led to the demise of auditor Arthur Andersen and reduced the Big Five to the Big Five. Four.
EY senior partners have been discussing their options for a restructuring of their global operations, according to three people with knowledge of the matter.
Plans call for the separation of a company focused on auditing the rest of the business, people said. The firm would retain experts in areas such as taxation to support business audits, said one person.
EY’s surprise move is likely to attract significant regulatory scrutiny and force its rivals to consider following suit.
“We’ll all have to reconsider our position, but that won’t be quick or abrupt,” said a senior partner at another Big Four firm, adding that the regulators ‘reaction would affect other companies’ responses.
A division of EY would result in two separately owned companies and would be a much bigger change than the more limited operational separation of the Big Four advisory and audit functions in the UK, which was agreed after the corporate scandals in the UK. BHS retailer and subcontractor Carillion.
The exact structure of the reform is being discussed, said one person, and any revision would require a partner vote and broad agreement from the individual national member companies that make up EY’s global business. The possible split was first reported by Michael West Media.
Mergers and acquisitions within professional service companies are notoriously difficult to achieve due to the need to build consensus among the individual partners who own and run companies in each country.
EY, which employs 312,000 people in more than 150 countries, is structured as a network of legally separate national member firms that pay an annual fee for the shared brand, systems and technology.
The firm’s leaders were still trying to find an exact structure that “works for everyone,” one of the people said.
The process could take “many months” and it is not yet certain that a dramatic restructuring will take place, the person added, 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 realize it will change the profession.”
EY said: “Any significant change would only occur in consultation with regulators and after voting by EY partners. We are in the early stages of this assessment and no decisions have been made.”