EY partners to vote on business split

BIG Four accounting firm EY is moving ahead to let its partners vote on a split of its audit and consulting businesses, a key step that could result in the biggest shake-up in the accounting world in 2 decades.

The plan comes as regulators in the US and Europe turn up the pressure on accounting firms to tackle potential conflicts of interest between the 2 business lines. But numerous reports have suggested that a radical overhaul of EY’s business could increase its profitability and open up opportunities with clients it had trouble wooing.

EY on Thursday (Sep 8) said it was proposing to split into a partnership focused on assurance, and a corporate focused on consulting. It will next engage with its roughly 13,000 partners till year-end to provide them with more information before voting takes place.

Voting is expected to begin on a country-by-country basis in late 2022 and conclude in early 2023. EY’s partners could reportedly earn multimillion-dollar payouts should the separation commence.

The firm said in a statement: “EY is proud of its legacy as a leading global professional services organisation. The world is changing, and we have to adapt to continue to thrive and achieve our full potential, while we address the needs of all of our stakeholders.”

For years, the pull for accounting firms to hive off their lucrative consulting business has emerged time and again, fuelled by a concern that the firms might compromise professional integrity in compliance duties in a bid to please their existing consulting clients.

EY’s global chair and chief executive Carmine Di Sibio has called the firm’s position in the tech audit space “both a blessing and a curse”. The firm has been prevented from working with some of the biggest tech companies on projects for other clients due to conflicts of interest.

Di Sibio told Financial Times in July that if the advisory business becomes a standalone one, it would earn US$5 billion to US$10 billion a year in consulting fees that are currently off the table.

Either way, a split-up of EY is likely to create 2 giants in the professional services industry. The group raked in US$40 billion in revenue for its 2021 financial year, with the audit and assurance business accounting for US$13.6 billion, or 34 per cent, of those revenues.

Now, other firms in the Big Four are being closely watched for plans to abandon the model of combining audit and consulting services. PwC’s global boss Bob Moritz has defended the structure, saying offering both services gives it a competitive edge.

Deloitte has denied exploring plans to split the business, while KPMG’s chief reportedly said such a radical restructuring comes “at the expense of the next generation”.

Accounting firms were pressured to spin off their consulting work from their audit functions amid a wave of distrust following the Enron debacle that forced the collapse of its high-flying auditor Arthur Andersen. Yet, the 2 business lines have found their way back together again over the years.

Still, an EY decision to split may be a harbinger of things to come in the accounting world, said National University of Singapore Business School professor Lawrence Loh.

“Even if there is initial inertia or reticence by the other Big Four (firms), they may have to throw their hat into the ring to capture the emerging demand for advisory services, especially with the rapid transition to fight climate change and elevate sustainability,” he said, noting that a spin-off of the advisory arm could help firms move fast for the next big wave of business transformation.