EY’s 120 partners in the Republic will vote later this year or early 2023 on a plan by the wider global organisation to split its audit and consulting businesses, which would amount to the biggest shake-up of the accounting profession in two decades.
EY confirmed on Thursday that its global executive committee, which overseas the firm’s 312,000-person worldwide network, had decided to progress a plan to separate the exiting practice into two, distinct organisations.
“Having carefully considered various options, we firmly believe that we can embrace the changing landscape, build businesses that redefine the future of our professions, create exciting new opportunities, and deliver greater long-term value for EY people, clients and communities,” EY said.
“The next steps include ongoing engagement with partners to provide them with more information in advance of the voting process. We expect this phase to continue through the end of the year, with voting expected to begin on a country-by-country basis in late 2022 and conclude in early 2023.”
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The move would address long-standing regulatory concerns about the potential conflict that arises from the firm providing non-audit work to clients they are also responsible for auditing. EY’s other so-called Big Four rivals, Deloitte, KPMG and PwC, face the same issue.
EY’s audit function will be bundled into a business that will offer assurance services and retain the EY name. The consulting business will be given a new name and prepared for a stock market flotation.
EY is facing multibillion-dollar legal claims in Germany and the UK over its allegedly failed audits of two corporate implosions, fintech company Wirecard and hospital operator NMC Health. EY has said it stands by its audit work.
[ Wirecard and EY Germany: the anatomy of a flawed auditOpens in new window ]
[ Questions for EY over its handling of Anglo Irish Bank’s auditsOpens in new window ]
In the Republic, EY remains subject to a professional disciplinary inquiry by Chartered Accountants Ireland into its role as auditor of the now-defunct Anglo Irish Bank’s 2008 accounts at the height of the financial crisis. EY has consistently stood by the quality of its work performed in the Anglo Irish Bank audits.
Frank O’Keeffe, managing partner of EY Ireland, said it is envisaged that the current 120 partners, 3,600 employees and fee income will be split 45 per cent to 55 per cent between the two planned new businesses. He declined to comment on planned incentives and windfalls for partners as part of the separation.
The Financial Times reported that consulting partners globally would be handed a 75 per cent share of the advisory business, potentially worth as much as seven to nine times their annual salary, depending on the company’s eventual valuation. However, the shares would be awarded over five years, effectively tying the financial fortunes of partners to the success of the new venture, it said. Partner earnings in the new company would be cut substantially in the meantime and a cost-cutting programme would be launched. Audit partners are set to receive cash payouts, modelled at two and four times their annual earnings.
