Other Big 4 accounting firms not taking EY’s lead, will keep auditing and consulting together

THE world’s largest public-accounting firms will not be following in the footsteps of their rival, EY, in terms of splitting their auditing and consulting businesses, they told The Business Times (BT).

Industry observers have also said that such a split makes little sense for the rest of the Big 4, because such a separation could end up harming the spun-off consulting businesses – which could lose the work referrals they typically get from their auditing divisions..

EY’s official announcement on Friday (Sep 9) confirmed what the market had been speculating for months: that it would separate into 2 distinct, multidisciplinary organisations.

In response to queries from BT, EY Asean regional managing partner and Singapore and Brunei managing partner at Ernst & Young Solutions, Liew Nam Soon, said: “This split is an industry-defining move and will create 2 leading multidisciplinary businesses – a partnership focused on assurance, and a corporate focused on strategy, consulting, managed services and tax.”

He went on to say that stakeholder demands are evolving.

“They want advancement of audit quality, more choice and independence, and non-audit clients want more technology-enabled services and more ecosystem solutions.

“Independence issues make this move inevitable, but new client demands make this a business imperative, now,” he added.

EY will now be proceeding with partner votes around the globe on the split. It will begin later this year, on a country-by-country basis, and is expected to conclude in early 2023. A date for when the Singapore partners will vote on this issue has yet to be confirmed.

The global firm will be continuing with engagement with its partners to provide them with more information in advance of the voting process.

The Institute of Singapore Chartered Accountants (Isca), Singapore’s national accountancy body, told BT that, with EY’s move having been in public speculation for a while and the other firms having also discussed such possibilities, the remaining Big 4 firms are likely to adopt a wait-and-see approach for now.

Isca president Teo Ser Luck said: “Should the move be supported by EY partners, we believe it will intensify the discussion for the other firms to extract greater value from the advisory business.”

EY’s Liew told BT: “By separating into 2 distinct, multi-disciplinary organisations, all stakeholders will benefit – there will be more choice in the market, greater investment in the services business needs, greater growth and accelerated career opportunities for our people.”

But the firm’s rivals in the industry seem to hold a different view. The other Big 4 professional services firms in Singapore that BT spoke to said they are intending to keep their businesses whole.

KPMG said it remains “unambiguously committed” to its business model, which brings together audit, tax, legal and advisory services under one roof. It added that this multidisciplinary model supports high-quality audits, attracts the best talent, enables technology-driven solutions, and fosters innovation and ongoing investment.

“We have no plan to sell off the future of our organisation to monetise the past. We are clear that our integrated approach best serves our people, our clients, the economy and wider society,” it said.

Deloitte said its multidisciplinary model and private-partnership model continue to be its preferred strategy and structure, as they allow the firm to serve its clients with distinction, take care of its people, give back to its communities, and uphold public trust.

“Our structure delivers industry-leading results and high-value, high-quality services across all our businesses. It’s entrepreneurial, innovative, and purpose-driven. As a result, we will not separate and split our businesses, and we will not monetise our collective life’s work,” it added.

PwC said in response to queries that it is fully committed to its current strategy. “Our view continues to be that access to a wide range of expertise and competencies is essential to serving our clients and all other stakeholders and delivering high-quality services. We are always ready to respond to changes in the regulatory and competitive environment if that becomes necessary, but have no plans to change course.”

Some industry observers are also of the view that splitting the auditing and consulting divisions makes little business sense and is, therefore, unlikely to be undertaken by the other professional-services firms.

Mak Yuen Teen, professor of accounting at NUS Business School, said: “My view is that a fair bit of the consulting work that the Big 4 undertake probably comes from the door opened by their auditing division. If they split the business, there may be fewer referrals from the audit side – and the consulting side may then have to compete on a more level playing field with other consulting firms.”

While the Big 4 dominate the consulting market, they do have to contend with rivals such as Accenture and McKinsey & Company. Still, a 2014 Gartner report estimated that the Big 4 accounting firms held the biggest share of global consultancy income, with a combined 40 per cent of the market – with the top 10 consultancies accounting for 52 per cent of the market.

A more recent Gartner report, published in June, ranked Deloitte as the top consulting service provider worldwide by revenue, a position it has held for some time. It said Deloitte had a market share of 12.4 per cent, and had outgrown the market with 19.9 per cent growth versus the overall consulting market’s 16.4 per cent growth.

“So, while they think they are leaving money on the table now, they may find they have less consulting work when consulting is separated from the auditing business. That’s why I believe the other Big 4 may not do the same,” Mak said.

He added that his concern is cross-referrals might still take place after the business divisions are separated.

“The assurance side may also be eyeing the potentially lucrative sustainability assurance business, and fresh conflicts may arise from doing both financial audit and sustainability assurance for the same client.

“And we will have to see if the audit side will later grow fresh new tentacles and get into new non-audit services again.”