The business world has been abuzz lately with rumors of some of the Big Four accounting firms considering separating their audit and consulting businesses to free themselves from conflict of interest concerns. The separation would permit the firms to more fully embrace their substantially more profitable consulting practices, and in news reported by The Wall Street Journal, could lead to multimillion-dollar payouts to partners within Ernst and Young (EY).
According to the report, an early draft of the proposal, known as Project Everest, intends to spin out EY’s consulting business in an IPO tentatively scheduled for late 2023. While still in the planning stages and subject to approval by a partner vote, the split would provide millions of dollars to the highest-ranking EY employees, known as partners. The typical partner makes $850,000 to $900,000 annually, and under the latest version of the proposal, partners who choose to remain with the audit practice are slated to receive a cash payout of two to four times their annual compensation, amounting to $1.7 million to $3.6 million for the average partner.
While the remaining Big Four firms of Deloitte, KPMG, and PwC have claimed that they will keep to their existing model of providing tax and consulting services along with their audit work, the financial benefits of spinning out audit practices may be too lucrative for them to ignore, with EY potentially receiving an early competitive boost by moving first. The Wall Street Journal has previously reported that Deloitte was conducting exploratory talks with Goldman Sachs Group, Inc. about a similar spinout.
According to WSJ, EY executives are expected to decide whether or not to move forward with the proposed spinout before July 4, with a “yes” vote resulting in executives embarking on a global roadshow to pitch the idea to partners over the summer before a vote anticipated later in the year or in January 2023.
EY making the first move could be the start of one of the biggest shake-ups in the accounting world in decades, as the remaining firms would be unlikely to retain the old model of doing business. This could result in the launch of four consulting giants along with four independent auditing businesses operating on a far smaller scale. While the current news gives the impression that this is all talk, all four firms have a long history of speaking softly while making major moves.
