In June, The Wall Street Journal broke the news that Big Four firm Ernst & Young (EY) was considering splitting its advisory and audit practices into separate business entities, seeking additional profitability while attempting to avoid conflict of interest and ethics concerns. Weeks later, the paper again made waves by reporting that Deloitte was also exploring a plan to do likewise, marking one of the largest potential shake-ups in the accounting industry in decades. In an apparent reversal reported by The Economic Times of India, Deloitte and KPMG both asserted in early September that they have no intentions of separating their consulting and audit businesses.
The move by EY to separate the two business arms could yield windfall profits for partners in the millions of dollars, and potentially lend a competitive advantage to the firm by permitting its advisory business to operate free of conflict of interest compliance regulations. The company’s consulting business is significantly more profitable than its audit practice, which accounted for $13.6 billion of the firm’s $40 billion global revenue in 2021. EY’s consulting practice drew $15.9 billion, with the remainder coming from its tax practice. EY announced that its leaders have decided to move forward with partner votes on the matter, with next steps involving engagement with partners to provide information prior to the vote, which is expected to begin on a country-by-country basis by the end of 2022 and conclude in early 2023.
“Deloitte’s multi-disciplinary partnership and private partnership model continue to be the preferred strategy and structure, allowing the network to serve clients with distinction, take care of our people, give back to our communities, and uphold the public trust. This structure delivers industry-leading results and high value, high quality services across all our businesses. It’s entrepreneurial, innovative, and purpose-driven. As a result, we will not separate and split our businesses and we will not monetize our collective life’s work,” Deloitte's Global Spokesperson said in a statement to ETCFO's request for a comment.
KPMG echoed a similar perspective, and rival PwC remained ambiguous on its view of the move and seemed firm that its own future plans did not involve a split of its practices. Given EY’s initial denial of plans to split its practices, it remains possible that others in the Big Four may pursue this path as well.