Ernst & Young has pushed ahead on a partner vote to break up the business into separate audit and advisory firms. Leaders across the 15 biggest member organizations, which represent 80 percent of the firm’s £39bn annual revenues, unanimously agreed on the much-mooted pivot late last week.
Voting by the 13,000 partners on a country-by-country basis is set to begin across offices in more than 150 countries towards the end of this year and will be completed in early 2023. Globally, the firm’s 312k employees are set to be affected by the change.
The break marks the biggest shift in decades amongst the tight ‘Big Four’ accounting and consulting firm circle: EY, KPMG, PwC, and Deloitte. It comes after several high-profile corporate collapses, such as Carillion, BHS, Fintech’s Wirecard AG, and hospital operator NMC Health PLC, which raised questions about the firm’s audits.
EY leaders hope new audit and advisory branches can redefine the firm’s future and promote faster growth. The separated business arms plan to remove any operational challenges and conflicts of interest, whilst also preventing future business failures.
“EY’s strategic review of its businesses has progressed, and EY leaders have reached the decision to move forward with partner votes to separate into two distinct, multidisciplinary organizations,” the firm said in a press release shared with ERP Today. “Having carefully considered various options, we firmly believe that we can embrace the changing landscape. The world is changing, and we have to adapt to continue to thrive and achieve our full potential.”
The landmark split had already received support from Sir Jon Thompson, chief executive officer of the Financial Reporting Council, UK accounting regulator, who suggested EY could benefit from a formal separation.
It’s been speculated by EY that $10bn could be raised by selling 15 percent of shares in a separated firm. From this figure, audit partners in the business are also expected to receive multi-million-dollar payouts for releasing the consulting side of the business, with final amounts dependent on any outstanding business costs to be covered.
EY’s chief executive officer, Carmine Di Sibio, has also claimed a further $5-10bn per annum could be raised in revenue by the break-up through standalone advisory offerings to large technology firms.
Back in July, Di Sibio told the Financial Times that “When EY committed to keeping both its audit and advisory operations almost a decade ago, it had not anticipated how important cloud technology and partnerships with tech companies would become”.
Despite all the Big Four firms set to report increased revenues this financial year, with EY expecting a record global revenue of $45bn, Di Sibio further suggested that splits were likely to be inevitable moving forward. “As these firms get bigger and bigger, [conflicts] become harder and harder to manage”, said the CEO.
With the potential benefits to come, EY could mark the first of many shifts in the audit and consulting inner circle.