EY Shocks Industry by Cancelling Plan to Split Audit and Consulting Units!

EY cancels plan to split audit and consulting units, citing regulatory concerns

One of the Big Four accounting giants, EY, has abandoned its plan to separate its audit and consulting units, which was aimed at addressing regulatory concerns over potential conflicts of interest. The proposal, known as “Project Everest,” was announced in September after regulators expressed concerns that EY’s audit arm would not perform its job fairly for clients if it also employed EY as a consultant.

However, the plan faced resistance from some of EY’s partners, and the company’s US Executive Committee decided not to proceed with the split. The company’s global executive remains committed to creating two world-class organizations that further advance audit quality, independence, and client choice. But given the strategic importance of the US member firm to Project Everest, the company is stopping work on the project.

The u-turn was first reported in the Financial Times. If the split had been ratified, it would have been the most significant overhaul in the accounting sector since the 2002 collapse of Arthur Andersen, the auditor that was mired in the Enron scandal and whose downfall reduced the Big Five to Big Four.

The UK auditing and accounting regulator, the Financial Reporting Council, had asked the Big Four firms in 2020 to separate auditing as a standalone business in Britain by June 2024. Julie Boland, who runs the US firm, threw the future of the project into doubt last month by calling a “pause” to planning work.

The split was first raised internally in 2021 when consulting businesses were experiencing historic growth on the back of a boom in corporate IT transformation projects as a result of the coronavirus pandemic. However, valuations have since tumbled and debt costs have risen, complicating the financial projections EY was using to plan Project Everest.

The global executive committee wrote, “We always knew Project Everest would be a challenging journey,” adding that they will begin taking actions based on what they have learned from the work done over the past year. These actions will benefit EY’s businesses today and better prepare the company for a new transaction.

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