EY plans spin-off from Global Audit in drastic reorganization of the Big Four

EY is working on a split of its audit and advisory activities worldwide in the largest restructuring of a Big Four accounting firm in two decades, according to three people who are aware of the plans.

The proposal, still swirling around in the upper echelons of EY, is a bold attempt to escape the conflicts of interest that have dogged the industry and brought regulatory action from the UK to the US.

EY and the other big four accounting groups that dominate the industry globally — Deloitte, KPMG and PwC — have come under heavy criticism for feeling an alleged lack of independence in auditing company accounts, as they also earn fees for consulting, tax and business advisory work .

The firms have rebuilt their consulting divisions since they sold them after the 2002 collapse of US energy company Enron, which resulted in the death of auditor Arthur Andersen and reduced the Big Five to the Big Four.

According to three people familiar with the matter, senior partners at EY have been discussing their options for a restructuring of global operations.

The plans call for separating an auditing-focused firm from the rest of the business, the people said.

Such a move would result in two separate companies and would represent a far more significant change than the more limited operational separation of the Big Four’s UK audit and advisory functions agreed following corporate scandals at retailer BHS and outsourcer Carillion.

The exact structure of the reorganization is still being debated, one of the people said, and any overhaul would require partner coordination and broad approval from each national member firm that makes up EY’s global business. The potential split was first reported by Michael West Media.

Mergers and acquisitions within professional services companies are notoriously difficult to implement because consensus must be reached between the various partners who own and operate the 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 share a common brand and technology under a contractual agreement.

EY leadership is still trying to figure out an exact structure that “works for everyone,” one of the people said.

The process could take “many months” and it’s not yet certain a dramatic restructuring would take place, the person said, but conceded that the changes would be significant if voted through.

“We want to take the profession in a new direction,” the person added. “We are aware that it will change the profession.”

A split would be a sharp repositioning of EY, whose previous global chief executive is Mark Weinberger sold in 2018 on calls for the Big Four to disband over concerns about lack of competition.

EY did not immediately respond to a request for comment.

https://www.ft.com/content/975214e6-a330-418d-9daf-f5b41b1847f7 EY plans spin-off from Global Audit in drastic reorganization of the Big Four

Adam Bradshaw

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