The Wall Street Journal made waves a couple of weeks ago when it reported that Ernst & Young (EY) was considering separating its audit and advisory arms as a way of increasing profitability while avoiding conflict of interest and ethics concerns. At the time, the remaining three of the Big Four firms had nothing to say about the possibility of their doing likewise. That appears to have changed, with the WSJ now reporting that Deloitte is also exploring a plan to split its audit and consulting practices.
Such a move would be one of the biggest shake-ups in the accounting industry in decades, creating two new consulting giants along with two stripped-down auditing firms, potentially handing windfall profits to thousands of the firms’ partners. According to a person familiar with the matter, the Deloitte talks are still at a very early, exploratory stage, though the firm has allegedly reached out to investment bankers at Goldman Sachs after the news of EY’s potential split broke.
Officially, Deloitte is denying any plans to split its consulting and audit arms, telling the WSJ in previous coverage—and with a spokesperson repeating the same to Reuters—that “we remain committed to our current business model,” describing the media reports about the potential split as “categorically untrue.”
KPMG and PricewaterhouseCoopers (PwC), the other two members of the Big Four, have reportedly also stated that they will keep to their existing model of offering consulting and tax services alongside their audit work. A KPMG spokesperson said in a statement that the firm remains “committed to our multidisciplinary model” and has not spoken to banks about a potential split-up. PwC stated last month that it had “no plans to change course” from its current approach.
Audit and consulting conflicts have long held the attention of regulators, and while the big firms may publicly scoff at the idea of spinning out their audit practices, the potential profits that could be realized by fully freeing their consulting practices from potential conflicts of interest are too great to be ignored. It is certain that the other firms will at least explore the option to follow in the footsteps of their rivals, especially given the sheer profitability of doing so.
