Dhe international auditing and consulting network EY has now officially announced its plan to separate the two business areas of auditing and management consulting. EY’s global leadership decided to propose to the partners to split into two distinct multidisciplinary organizations. EY announced this on Thursday.
EY is one of the four leading international providers of auditing and management consulting – alongside PWC, KPMG and Deloitte. Of the four industry giants, EY is the first to intend to conduct an international demerger. The project is justified by the fact that auditing and management consulting could grow much more independently of each other. If a provider is responsible for the annual audit of a company’s annual financial statements, he must not also advise the client extensively at the same time. This limits the possibilities of multidisciplinary organizations like EY, which offer many different services related to auditing, tax advice, management consulting or legal advice.
struggle for skilled workers
Growth is important for audit and consulting firms because it attracts the talent and skills that all vendors are desperately looking for. In the light of the Wirecard scandal, however, EY’s demerger plan can also be seen as a way of limiting the risk of claims for damages and damage to reputation.
EY now wants to inform its partners comprehensively about the demerger plan. The coordination in the partnerships in the different countries should then begin at the end of 2022 and beginning of 2023. The plan envisages bundling the business with management consulting in a separate and internationally active company. The consulting company would then – unlike EY before – no longer be organized as a network, but as an independent legal form and could be listed on the stock exchange in this form at some point. It is said to be active in more than 75 countries and to offer consulting services related to digitization, sustainability and taxes. The focus will be on transformations and corporate transactions.
Even after an IPO, the majority of the management consultancy should be owned by the partners. We are talking about a free float of only 15 percent. The structure is most likely comparable to that of the US bank Goldman Sachs, which is listed but in which the partners have a stake.
A brand name for the new consulting company has apparently not yet been decided. It seems clear that the EY brand will be reserved for the separate audit, which must also remain organized as a partnership due to regulatory requirements. The aim is to establish the independence of auditing and advice with effect for calendar year 2024 so that clients, regulatory authorities and employees have clarity. For existing audit clients, it is crucial to know when they could start using the services of the new consulting firm, should they so choose.
Audit retains EY brand name
In addition to the consent of the partners, numerous organizational steps are necessary. Two independent IT infrastructures must be set up. For the German arm of EY, about a third of the partners and employees work in auditing, two-thirds in management consulting.
Through the split, EY hopes for new business opportunities in Germany, because thanks to the new structure, the annual financial statements of those Dax companies that are currently consulting customers could also be audited in the future. At the same time, audit customers in Germany could then place lucrative consulting contracts. Of course, this principle also applies to other countries. In America, for example, EY is currently examining the annual accounts of the large companies Google, Microsoft, Salesforce or WeWork and can therefore not advise them at the same time. After the separation, this should be possible in the future.