Cautious words about a move that would shake up the accounting industry.
(Photo: Bloomberg)
Dusseldorf Carmine Di Sibio was just sitting with other managers in Davos, Switzerland, discussing the world situation at the World Economic Forum. Everyone was preparing for an economic downturn, no doubt about it, said the global head of auditing and advisory firm EY. Nevertheless, the companies remain busy, there are many digital projects, deals and spin-offs.
He must have had his own company in the back of his mind. Because the EY management around Di Sibio is working on a secret project itself on a split: the core business with auditing could be spun off into an independent company and thus separated from the consulting units, according to company circles.
The plans were made public at the end of the week, so the 59-year-old had to hurry to sign a circular to the 312,000 employees worldwide on the return journey from Switzerland. Basically, one wants to improve the quality of auditing, he wrote. He only said about possible changes in the group structure: “Nothing has been decided.”
These are cautious words about a move that would shake up the accounting industry. The “Big Four” – PwC, EY, KPMG and Deloitte – have been pushing the business model of an integrated service provider that combines auditing, tax, legal and management consulting under one roof for years.
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But the accounting scandals of recent years and the critical debate about the work of auditors are forcing companies to think about their self-image. As Global Chairman of EY, Di Sibio could now be the first to take action and separate the audit business from consulting.
allegations of conflicts of interest
Such simulation games do not come voluntarily. The auditors are accused of conflicts of interest when they combine auditing and management consulting under one roof. There is a legal obligation to split up.
Di Sibio has not only known about this debate since he rose to number one at EY in July 2019. Born in Italy and raised in New York, the manager has been with the company since 1985. He witnessed how auditors and consultants fell into disrepute as early as the turn of the millennium after accounting scandals such as Enron’s and the legislature intervened.
In 2000, what was then Ernst & Young was the first of the “Big Four” to part with its consulting division. It went to the French IT service provider Capgemini for eleven billion dollars. But it was not long before Ernst & Young, which initially focused on auditing the balance sheet, began to rebuild the consulting business and brought it to new size: in 2021, 26 billion of 40 billion dollars in sales were attributable to consulting alone.
It would therefore also be a déjà vu for Di Sibio if EY were to be split up for the second time. The qualified chemist knows that a dangerous mixture is currently brewing in the auditing industry. In 2016, the EU Commission comprehensively re-regulated the auditors – the providers were able to prevent even stricter legal requirements at the time.
Lawsuits from Wirecard investors worth billions
Now regulators around the world are once again taking on the industry. The recent accounting scandals, in which EY is also involved, are to blame. First and foremost Wirecard: The German EY offshoot is accused of failing to check Wirecard’s balance sheets.
EY is now facing billions in lawsuits from Wirecard shareholders. It’s not the only financial threat: in the UK, the company faces a £2billion lawsuit over possible mistakes as the auditor of hospital operator NMC Health. The company collapsed in 2020 after a major fraud case.
It is unclear whether EY will ever pay compensation. But Di Sibio knows about the risks of future new accounting scandals. And it is clear to him: The consulting units have little desire to share in the consequences – financially and in terms of reputation.
If the chairman decides to split up, he would have to convince the thousands of EY partners around the world who own the national companies. That would be a mammoth task even for the internally popular boss.
More: After accounting scandals, like Wirecard, EY is working on the spin-off of the audit business