In what could be a very bold move – with possible repurcussions for other audit giants – EY is reportedly considering a split of its audit & advisory businesses. That’s according to this WSJ article, which likens the magnitude & impact of this change to the collapse of Arthur Andersen. Here’s more detail from the WSJ:
How exactly the restructuring would work isn’t clear. The split could bolt some services, such as tax advice, onto the pure audit functions, one of the people familiar with the discussions said. The breakaway firm could then offer consulting and other advisory services to nonaudit clients.
Any change would have to be approved by a vote of the partners world-wide. EY’s global network consists of separate firms in each country that share technology, branding and intellectual property.
EY conducts a strategic review of its business lines every couple of years in which it weighs regulation, technology developments and competition with other firms, the people said.
As I blogged a few months ago, the SEC was conducting an enforcement sweep on conflicts of interest at the big audit firms. Last fall, the SEC’s Acting Chief Accountant also reminded auditors & audit committees of the importance of auditor independence. The concern is that consulting and other non-audit services may cloud independence and influence judgment on financial audits – and consulting relationships are continuing to grow.
This breakup would be a big deal if it happens – but it wouldn’t be completely novel. The article points out that Big Four firms are already splitting off audit operations from the rest of their services in the UK, due to regulatory demands there and scandals – and people have been predicting it could happen here too, for at least a couple of years. This actually wouldn’t even be the first time that EY has broken off a consulting arm – it sold its IT consulting division to France’s Cap Gemini 22 years ago. WilmerHale’s David Westenberg pointed out that the potential EY split is essentially what Andersen/Accenture did circa 2000, before Enron.
– Liz Dunshee