EY has announced it is halting its plan to divide its auditing and consulting divisions, after executives at the American portion of the firm decided not to push ahead with so-called ‘Project Everest’.
The news comes after the EY global leadership team sent partners an internal note on Tuesday, as shared with ERP Today, which states that the firm would be pursuing a different deal:
“We have been informed that the US executive committee has decided not to move forward with the design of Project Everest. Given the strategic importance of the US member firm to Project Everest, we are stopping work on the project.”
As the note alludes to, the abandoning of the project comes after ongoing disagreements, with EY US auditors recently campaigning for a larger slice of the tax practice post-divide.
Despite a unanimous vote by EY leaders last September to push ahead with the split, last month saw Julie Boland, EY’s US chair and managing partner, and the would-be-CEO of the audit business post-split, call for a rework of the deal, pausing progress.
There is no doubt a certain irony that the year-long project, which was meant to address regulatory concerns over potential conflicts of interest, has been called off due to internal disagreement. It is unlikely, however, that this will put the divide to rest for good.
Even though the US firm has called a halt on Everest, EY’s global executive team has stated in its note an ongoing commitment to “creating two world-class organizations that further advance audit quality, independence and client choice”. There are surely some multi-faceted reasons for pushing ahead, albeit via a different route and with continued country-by-country votes.
Over $100m has been spent on the project so far, and a packed-out team has been engaged in planning the summit. The firm is also no doubt conscious of financial supervisory bodies across the US, UK and Europe having raised concerns that large accounting firms cannot fairly serve as joint auditors and consultants for clients.
For EY leaders, it remains a question of needing more time to resolve the finer dividing decisions. As the internal note from EY global leadership team states: “We always knew Project Everest would be a challenging journey; we have listened to the views of the partners globally as we have shaped this path forward.
“We acknowledge the challenges with separating some of our businesses that have the deepest technical expertise in a way that gives both organizations the capabilities they need to compete in the market effectively. We also recognize that we need more time to make the necessary investments to prepare the businesses for a separation.”
The news also follows the firm’s two-year tender ban and €500,000 fine issued by Germany’s accounting watchdog earlier this month, after EY was named the 2016-2018 auditor for Wirecard. The ban forbids the auditor from participating in tenders for audits of all listed companies, including most of the financial sector.
As for the other Big Four firms, though insinuations had been made that they might follow suit with similar splits, there seems no imminent sign of that on the horizon.
Bill Thomas, global chairman and CEO of KPMG International commented on LinkedIn: “We remain firmly committed to our business model. KPMG is at its very best when we’re working together, pulling resources across geographies, disciplines, and expertise to solution the toughest issues – whatever it takes for whatever is needed.
“Our multidisciplinary model ensures we are always able to bring the right expertise and skills into the room at the right time to tackle any issue, enabling us to provide the very best advice to clients. To leave no room for doubt: we will not be changing our business model.”