Ernst & Young evaluating worldwide audit business split in big shake-up: Reports

Accounting giant Ernst & Young is reportedly looking at a world-wide split of its audit and advisory business in one of the biggest shake-ups in nearly two decades. The decision comes amid regulatory scrutiny of potential conflicts of interest in the profession, the Wall Street Journal reported, citing people familiar with the matter.

With the big move, which will create two giants, an audit-focused arm will be set up, separate from the rest of the business. Headquartered in London, Ernst and Young offers consulting, assurance, tax and transaction services. It earned a revenue of $40 billion, according to the Wall Street Journal report, of which $13.6 billion came from the audit work.

Chief Executive Carmine Di Sibio, as per news agency Reuters, revealed the details on Thursday in an internal memo. "No such decisions have been made," Sibio said in the memo as he referred to the spinoff media coverage. “With the changing competitive, regulatory and market landscape, work is ongoing to evaluate strategic alternatives,” he said in the memo to the firms partners.

Apart from Ernst and Young, the other global accounting giants are Deloitte LLP, PricewaterhouseCoopers and KPMG. Together, they have earned the nickname “Big Four”.

Worldwide, the audit industry is said to be facing increased scrutiny from investigators over conflicts of interest. But this also hurts their ability to perform independent reviews.

In 2020, EY was accused of a shoddy auditing by German fintech firm Wirecard. At that time, the accounting giant had - in a counterattack - said: “There are clear indications that this was an elaborate and sophisticated fraud, involving multiple parties around the world in different institutions, with a deliberate aim of deception.”

Meanwhile, any change at EY would have to be approved by global partners. The global network has firms in each country that share technology, branding and intellectual property.