Multiple news outlets are reporting news that EY is considering splitting their audit practice from the rest of the firm.
EY is denying that a decision has been made. They aren’t denying that they have considered it, but they are denying that a final decision has been made.
Carmine Di Sibio told employees in an internal email that no decision has been made and that he has his employees best interests in mind. As of this writing he has not released anything on his twitter account.
Most media are citing that the big 4 accounting firms have a perceived conflict of interest and that is hampering business. That doesn’t explain this move though. Big 4 have had that image ever since Enron.
I think this is more of a strategic decision to avoid actual conflicts of interest and go after more consulting work. Audit revenues have not been growing at the same rate as consulting revenues. Audit revenues have been growing in the low single digits for some time now.
Consulting revenues have been growing by 20%+ in some years. EY likely wants to make further headway in the consulting industry if these rumors turn out to be true.
EY’s New Equation
You might remember that PwC established a new equation late last year.
The new equation was calling their audit services trust services, and then bucketing everything else in another category while still keeping the firm together. They still offer the same services. They just relabeled them.
I think that is more likely what EY is doing here.
How Will This Impact Employees?
I don’t think there would be layoffs as a result of this. The labor market is too fierce. The only caveat to that is that EY’s audit practice is heavily focused in the tech sector. The NASDAQ and tech sector have faced terrible times with increasing interest rates and supply chain shortages.
If tech sees a bigger sell of and downturn, EY’s audit practice could be downsized in the future.
EY US CEO Leaving At End of June
One thing to remember is that Kelly Grier is leaving at the end of June. She is the EY US CEO. According to Fortune, she is leaving because she did not get along with current Global CEO Carmine Di Sibio.
Who Wants The Firm To Split Up?
Who would want the firm to split up?
First up I think EY senior partners would want the firm to split up because they would receive a huge pay day. They could get one last huge bonus before jetting off to their retirment.
Another group that could want the firm to split up is the consulting partners. Consulting partners at EY have their hands tied behind their backs by conflicts of interest and independence measures. If they created their own firm, then they could take consulting tools to all their clients. Right now they can’t partner with major tech companies when approaching clients because those tech companies are EY’s audit clients.