The company’s auditors and consultants are to go their separate ways in the future.
(Photo: Getty Images)
Dusseldorf EY’s top management plans to make a joint decision to split up the audit firm later this week. The plans for separating the consulting units from the audit business are then to be announced. “Also until the weekend”, as the Handelsblatt learned from company circles. There is a basic agreement, but at the same time details are still open.
So far, EY has never officially confirmed the plans, but the basic orientation in this direction has leaked out in recent months. EY wants to split into two independent companies.
Tax, management and legal advice is to be transferred to a new group. The still nameless start-up would have a turnover of around 26 billion dollars.
An IPO in autumn 2023 is planned for the new consulting unit. The traditional business with auditing will remain under the EY brand. This unit recently had sales of around $14 billion.
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With the advance, EY will stir up the industry. All major service providers such as PwC, Deloitte and KPMG have so far followed an integrated model of auditing and consulting. After the numerous accounting scandals in recent years, this has come under criticism. The service providers are accused of mixing interests.
Wirecard shook the business model
As the long-standing auditor of the collapsed Wirecard AG, EY is itself involved in one of the biggest of these scandals. There are still lawsuits from investors worth billions against the auditing company. EY is also facing lawsuits in other countries for alleged audit errors at companies in crisis.
Such risks are increasing for the large audit firms. In industry circles it is said that the EY tax consultants in particular took the initiative to separate because they no longer want to bear the financial risks of the audit. This motive was not confirmed in corporate circles.
The global CEO of EY, Carmine Di Sibio, internally cites the increasing government regulation of the audit business and the associated restrictions on the advisory teams as the reason. Legislators in many countries have regulated the industry more tightly after the scandals – as was the case with Wirecard in Germany.
This makes it increasingly difficult for companies to combine auditing, tax and management consulting under one roof. EY expects that regulation in the USA, for example, could become even stricter. Separating the deals could free the consultants for each other’s deals from these shackles.
Pension burdens must be shared
The implementation of the splitting project under the internal name Everest will take some time. Until the very end, the EY management worked on crucial issues: On the one hand, it is about the financial and structural resources of the future audit unit. It needs a lot of money for investments in digital technology, for example, and sufficient financial strength to deal with legal risks.
In addition, the pension burdens of the previous EY national companies have to be redistributed, which is considered a complex undertaking.
It is unlikely that EY will present all the details this week. The management is more concerned with going public with the main features and taking the decision about the project to the global partnership.
This will be the next hurdle Di Sibio faces in the split plans. EY has around 14,000 partners worldwide, most of whom have to approve the Everest project. This process should be completed by the end of the year. The spin-off of the consulting business could then take place in mid-2023 and the new entity could go public in autumn 2023 at the earliest.
More: “Project Everest”: EY auditors demand money for the spin-off of the consulting business