Global advisory firm EY is reportedly planning to spin off its auditing business in an attempt to steer clear of perceived conflicts of interest between the company’s accounting and consultancy divisions, a trend that has plagued the accounting industry.
The voluntary split is expected to be the biggest shake-up for the industry in two decades. Initial reports also suggest that other firms comprising the Big Four – KPMG, PwC and Deloitte – may likely follow suit, considering regulatory pressure for them to separate their auditing divisions from the rest of their operations by June 2024.
EY said it is still in the “early stages” of evaluation. However, senior partners are working out plans to begin the split as part of a wider effort to restructure the firm’s global operations, according to sources who spoke to the Financial Times. The firm will likely retain consultants who specialise in tax concerns while it builds out a division focusing only on auditing.
Overall, the move will create two separately owned entities. But any major restructuring will require consensus among partners and member firms on a country-by-country level to decide on the direction of EY’s global operations.
With a workforce of 312,000 and a presence in over 150 countries, EY will have to develop a model that “works for everyone,” according to a source.
Despite the firm’s largely democratic stance, reports of the split have sparked fears among its auditors on the potential decrease in their earnings.
As one source for efinancialcareers.com said: “Consulting is where the money is.” Oftentimes, auditors shift careers into consulting because the latter is purportedly more lucrative with higher profit margins.
Meanwhile, other EY employees oppose the split out of concern that the move would make operations more complex.
“Auditors require the assistance of specialists, such as the tax/valuations team. Even after separation, we would need to utilise the services of other departments, which is illogical,” another source said. “I appreciate we can allocate some specialists exclusively for audit; however, I do not see this as a solution.”