EY is preparing to divide its audit and consulting operations globally, marking the greatest shake-up of a Big Four accounting firm in two decades. Is this the breakup of EY?
The concept, which EY’s senior partners are still working out, is an audacious attempt to get around the conflicts of interest that have plagued the sector and prompted regulatory action from the UK to the US.
Due to the revenues they also receive from consultancy, tax, and deal advice work, EY and the other Big 4 accounting organisations that dominate the business globally—Deloitte, KPMG, and PwC—have come under heavy fire for what is believed to be a lack of impartiality in their audits of corporate accounts.
Since the collapse of US energy giant Enron in 2001, which resulted in the death of auditor Arthur Andersen and the reduction of the Big Five to the Big Four, the companies have rebuilt their consulting divisions.
The proposals include for separating an audit-focused firm from the rest of the company.
The unexpected action by EY is likely to receive intense regulatory attention, which would compel its competitors to think about imitating it.
The Big Four’s UK audit and advisory roles were agreed upon after corporate crises at retailer BHS and outsourcer Carillion, but an EY split would result in two independently held companies and be a considerably more significant move than that.
Professional services firm mergers and acquisitions are notoriously challenging to complete because individual partners who own and manage the businesses in each country must come to an understanding.
EY is organised as a network of legally independent national member firms that pay an annual fee for shared branding, systems, and technology. EY has 312,000 employees and operates in more than 150 countries.
Is this the breakup of EY or the Big 4 as a whole?
In short, this is not the breakup of the Big 4. That said, this signals a drastic reorganisation of the divisions within Big 4 firms which could signal long term changes to the make up of firms.