Big Four accounting firm Ernst & Young is considering a global split of its audit and advising businesses amid regulatory scrutiny of potential conflicts of interest in the profession, reported WSJ, citing sources familiar with the situation.
This split will be the biggest structural shift at a Big Four firm since Arthur Andersen separated 20 years ago.
The potential split would create two giant professional firms. EY last year had global revenue of $40 billion, of which $13.6 billion came from audit work.
It’s unclear how the restructuring would function, WSJ wrote. The split might add additional services, such as tax advising, to the pure audit functions. Non-audit clients could then be served by the breakaway firm’s consulting and other advisory services, one of the sources stated.
The Securities and Exchange Commission is looking into possible conflicts of interest at the Big Four and a few mid-tier audit companies. Senior SEC officials have publicly advised accounting firms not to “creatively implement the [independence] rules in recent months.”
The firm has no set timeline for the potential breakup, which is still under contemplation and may not go ahead.
Accounting industry insiders believe that an EY breakup would put pressure on the remainder of the Big Four—Deloitte, KPMG, and PricewaterhouseCoopers—to explore similar major changes. “This might have a destabilizing effect on the soundness of the assurance profession,” said Jim Peterson, a former Arthur Andersen partner and attorney.
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