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Ernst & Young Expected to Spin Off Consulting Arm by Late 2023

WSJ | Jean Eaglesham | Sep 5, 2022

EY to split company - Ernst & Young Expected to Spin Off Consulting Arm by Late 2023

Decision to push ahead with proposal to spin off consulting arm could lead to firm splitting in late 2023

  • The accounting giant’s global executive committee, which oversees the firm’s 312,000-person worldwide network, met on Labor Day to put the finishing touches to the plan for a worldwide breakup, the people familiar with the matter said. The committee is expected to approve the plan later this week, which will trigger votes on the deal by EY’s roughly 13,000 partners, who stand to make windfalls averaging more than a million dollars each.
  • The split would separate EY’s accountants who check the books of companies such as Amazon Inc. from its faster-growing consulting business of advising on technology, deals and other issues.

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  • EY’s move could radically reshape the accounting landscape if it goes to plan, industry watchers said.  “There’s a good chance it will cause other big firms to follow suit,” said Martin White, a senior analyst at Source Global Research.
    • EY’s rivals say they intend to keep auditing and consulting under one roof [including Deloitte, KPMG, PricewaterhouseCoopers)
  • EY’s leaders are expected to say the split will be good for the firm’s finances, as well as their own, according to the people familiar with the matter. They hope the breakup will free the consultants to win billions of dollars of new business, unfettered by independence rules that restrict the work accounting firms can do for audit clients, the people said.

Watchdogs

  • The watchdogs are expected to be pleased by the reduction of potential conflicts of interest, a longstanding problem in the industry. They will want to be assured that EY’s audit-focused firm will be sufficiently resilient to withstand potential blockbuster litigation damages, despite its sharply reduced size.

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  • Another issue that needs clearance by the regulators is branding. Paul Munter, the SEC’s acting chief accountant, said last month that after an accounting firm sells off part of its business, the new entity shouldn’t profit from the accounting firm’s name or logo. The two businesses can’t share any marketing or advertising, he added.

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