EY Changes UK Audit Leadership
EY has announced that they are breaking up their leadership in the UK. They will have different leadership teams between audit and assurance lines of service.
This is a little bit confusing to me because I’m used to audit and assurance meaning the same thing. I guess in this case assurance is the consulting branch of the audit unit of Ernst and Young. EY is doing this to appease regulators. Regulators in the UK are pushing very hard on the audit firms. They think there are too many conflicts of interest because they are trying to get consulting fees from their clients.
I don’t see this happening in the U.S. because the U.S. is focused on decreased regulation. I don’t think this is a bad idea, but I don’t think it will stop conflicts of interest. The big 4 partners all speak to each other. Their bonuses are based on firmwide profits and not just their segment. They will do anything to help the firm at large. They will still be holding meetings where they speak to each other and brainstorm ways to make more money from their clients. These discussions will still include discussions about how to get more money from audit clients, so I don’t see this problem going away any time soon.
Hertz Announces Bankruptcy
Hertz announced bankruptcy in the United States. I spoke about this a few weeks back, but it is now cofirmed that Hertz will go bankrupt. This means they will no longer be a public company. Therefore over the long term they won’t be paying a ton of money in audit fees. In 2018, they paid Ernst and Young 15 million in audit fees. This dropped to 9 million in 2019 which isn’t shocking. I’m sure 2020 will be around the same number since they will still need auditors to help them with their financials in bankruptcy. The fees will go down over the long term which means less revenue for EY. All big 4 firms will be heavily impacted by more looming bankruptcies.
Deloitte Wins Unemployment Work In California
Deloitte has won a no bid contract in California related to work on California’s unemployment website. I think this is pretty hilarious based on recent news that they are getting sued by several states over their unemployment contract work. The contract is for $5 million which is a big contract for these times. It’s interesting that it was a no bid contract though. California has a bad history with Deloitte as well. They previously had a contract with them that ballooned up to 110 million which was double what the original estimate was. We will have to keep an eye on this work to see if it ends up like the other Deloitte state unemployment work.