If EY effectively decides to cut itself in half, it will not only revolutionize the audit and consulting world. Such a scenario also provides more clarity for customers. “A gray zone disappears.”
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The news that the giant EY considers splitting in two, is putting the entire audit and consultancy world under high pressure these days. EY, a British-American company with 312,000 employees in 150 countries, may decide in early July whether to separate its advisory and auditing activities. Earlier this week, plans leaked out that EY wants to partly list its consultancy branch. The billions generated by such an IPO should serve to enable the separation of the audit branch. Although EY emphasized that the leaked plans were dated and that no decision has yet been made. It may well be that EY, which used to be called Ernst & Young, will eventually leave everything as it was, it was said.
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Parting
EY, a giant with more than 300,000 employees in 150 countries, is considering splitting in two and separating its audit and consultancy arm.
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Revolution
An EY split would mark the biggest upheaval in the industry in 20 years. The other Big Four members – Deloitte, KPMG and PWC – are expected to follow suit.
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clarity
Divorce offers the benefit of clarity, advocates say. Today, both the Big Four and clients struggle with a number of gray areas in which it is not clear whether the auditors are working according to the rules. A split removes that ambiguity, and can especially boost the consulting activities.
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Wirecard
The stories about a possible revolution in the sector do not come out of nowhere. Critics have for years questioned the fact that the Big Four and a number of other multinationals such as BDO can offer both auditing and advisory services.
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That increases the risks of a conflict of interest, according to the critics. Are auditors not more likely to turn a blind eye during a client’s audit if they know that their colleagues from the consultancy also provide services to that company?
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The demise of fraudulent fintech giant Wirecard two years ago this month has further heightened that discussion. EY came under heavy fire in that affair for allegedly making huge strides in its control of Wirecard’s books. If the company had done its job, Wirecard’s tampering might have come to light sooner, many observers believe.
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EY isn’t the only player in the industry that has been hit by corporate scandals recently. In May, KPMG in the UK reached a settlement of more than £14 million in a case involving the bankruptcy of British construction company Carillion in 2018. Former KPMG employees had misled regulators for years with falsified audit documents about Carillion and the software company Regenisis.
