Accounting giant EY to spin off audit division from advisory business

Accounting giant EY in shock move to spin off audit division from wider advisory business

EY is understood to be splitting the audit arm from its wider advisory business – with senior partners still ironing out the final proposals

EY is about to embark on one of the biggest shake-ups of an accounting giant in decades, as it plans to hive off its audit operations.

The beancounter, formerly known as Ernst & Young, is understood to be splitting the audit arm from its wider advisory business – with senior partners still ironing out the final proposals.

The audit industry is facing increased scrutiny from investigators around the world, after the so-called Big Four firms – EY, PwC, KPMG and Deloitte – were involved in a series of scandals.

There are also fears that the firms face conflicts of interest, because many of the businesses which they audit also provide them with lucrative advice work.

Audit workers are supposed to scrutinise a company’s accounts, checking the validity of the numbers and standing up to the management where they think something does not add up. 

But the large accountants have been handed a string of fines in recent years for failing to do this properly.

Their shoddy work contributed to the collapse of cafe chain Patisserie Valerie, constructor Carillion and mattress maker Silentnight.

It is understood that a break-up of EY would involve its audit arm being spun off from the consulting side, which advises on business plans, tax issues and deals.

The whole firm employs around 312,000 staff around the world, including around 22,000 in the UK.

The move would likely prompt EY’s rivals to consider similar shake-ups.

A senior partner at another of Big Four accountants told the Financial Times: ‘We will all need to review our position but that will not be quick or knee-jerk.’

The split being considered would go far further than the order from regulator, the Financial Reporting Council, to simply separate the operations of audit and advisory firms. 

Critics, government and watchdogs have been pushing for change in the audit industry for several years, and plans for reform were finally mentioned in the Queen’s Speech earlier this month.

But experts said the Government’s suggestions to establish a more aggressive regulator, bring more big companies under more stringent audit oversight, and to improve competition in the sector did not go far enough.

A spokesman for EY said: ‘As the most globally integrated professional services organisation, we regularly conduct scenario planning and review [our] businesses on a global basis to determine that we have the optimal strategy, structure and footprint to focus on delivering high quality audits and exceptional service to all clients.’

The spokesman added that EY was ‘in the early stages of this evaluation, and no decisions have been made’.