EY plans to spin off audit, consulting units to ease regulatory concerns

London-based EY, which in June had denied reports on its restructuring plans, said it would provide its 13,000 partners with more information before voting on the split starts on a country-by-country

Professional services firm Ernst & Young said on Thursday it was planning to split its audit and consulting units into two companies, as it looks to ease regulatory concerns over potential conflicts of interest.

“This is something that will change the industry,” Carmine Di Sibio, EY’s global chairman and chief executive, said in an interview.

Rivals beg to differ. Deloitte, KPMG and PricewaterhouseCoopers have all said they plan to keep consulting and auditing under one roof. These other Big Four firms hope to exploit EY’s focus on its restructuring to poach clients and employees, according to people familiar with the matter.

“That’s to be seen, who’s wrong and who’s right,” Di Sibio said. The proposed breakup “provides tremendous opportunities for our people, our clients and our partners,” he added.

The green light for the break-up from Di Sibio and other EY leaders means the plan will now go to a vote with the firm’s roughly 13,000 partners. “This is a big step…in a very complicated process,” Di Sibio said.

For years, the Big Four accounting firms, comprising EY, Deloitte, KPMG and PricewaterhouseCoopers, have been under regulatory scanner over concerns their advisory services could undermine their ability to conduct independent reviews.

London-based EY, which in June had denied reports on its restructuring plans, said it would provide partners with more information before voting on the split starts on a country-by-country basis from late 2022. It is likely to conclude in early 2023.

UK auditing and accounting regulator, the Financial Reporting Council, had asked the Big Four firms in 2020 separate auditing as a standalone business in Britain by June 2024, partly spurred by corporate failures at builder Carillion and retailer BHS.

EY affiliates, which audited payments company Wirecard AG's books, are also facing heat from the German fintech firm's investors after it collapsed in 2020. EY has denied any wrongdoing.

The far-reaching proposal would separate EY’s accountants who audit companies such as Amazon.com from its faster-growing consulting business, which advises on tax issues, deals and more.

The company is expecting to report a record revenue of $45.4 billion for its most recent financial year, up 13.5 per cent from a year earlier, according to a report from the Financial Times.