In early September, EY announced its plan to split into two businesses, with the press release stating “EY leaders have reached the decision to move forward with partner votes to separate into two distinct, multidisciplinary organizations.” EY is an assurance, tax, transaction and advisory services firm and is one of the “Big Four” accounting firms alongside Deloitte, PwC, and KPMG. The combined revenue of the influential Big Four firms exceeded 167 billion U.S. dollars in 2021.
The proposed split, which has been compared to the Andersen Consulting (Accenture)/Arthur Andersen split in 2000, would create separate audit and consulting (advisory) practices. One of the main reasons for EY proposing this is to avoid conflict of interest issues between the two practices. In terms of ensuring auditor independence, Title II of the Sarbanes-Oxley Act “makes it unlawful for Registered Public Accounting Firms to perform both audit and nonaudit services for the same company at the same time” (Clarkson 900).
Source Global Research’s Martin White, in a September podcast, discusses the reasons for the split. He notes (paraphrased) that EY has been auditing a large number of technology companies that they would like to form partnerships with or work within their ecosystems. EY audits Amazon, Google, Salesforce, and Workday, to name a few, making it very challenging for their consulting arm and there is a “whole bunch of consulting work they would love to do.”
The issues involved are all quite complex, however, it is important that category spend managers and buyers of professional services understand the implications of this event if it gets approved by the partners. According to the The Wall Street Journal, industry observers note, “EY’s move could radically reshape the accounting landscape if it goes to plan.” A recent Bloomberg Tax article indicates that the proposed split may be the beginning of a larger trend to come. “For now, the other members of the Big Four have shown no public interest in a separation of powers and, in some cases, have even panned EY for its split. But don’t be surprised if others soon join EY in establishing the independence of their tax and audit services. As governing bodies struggling to sort out the potential conflicts of the accounting giants continue to exert pressure, Deloitte LLP, KPMG LLP, and PricewaterhouseCoopers LLP may follow suit. Smaller firms that have yet to cement their brands in the public consciousness may be more reluctant to split but may decide that the associated growth opportunities are too great to ignore.”
Clarkson, Kenneth W. and Roger LeRoy Miller. Business Law: Text and Cases. 15th ed., Cengage, 2021.
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