The Australian Financial Review reported today that EY had hoped to temporarily share the EY brand name between a new independent consulting firm and its existing auditing firm if a decision is made to split the two businesses into separate entities. But according to a statement this week from SEC acting chief accountant Paul Munter, that’s not going to happen.
It’s quite possible Munter was thinking about the whole EY situation when he wrote, “Auditor Independence and Ethical Responsibilities: Critical Points to Consider When Contemplating an Audit Firm Restructuring,” on Aug. 29. Is he talking about EY here without actually talking about EY?
We remind accountants that they are required to be independent in both fact and appearance, and when auditor independence is a close-to-the-line call, accounting firms need to have a strong culture and tone at the top that prioritizes its independence and ethical responsibilities above all else. In the current environment, as some accounting firms may be considering changes to their capital and firm structures, we expect accounting firms to keep as their top priority a focus on their vital gatekeeper function. In particular, the fundamental importance of auditor independence, ethical behavior, and a focus on audit quality to maintain the trust of investors. Any business decisions made by an accounting firm should be made with these foundational principles at the forefront.
Munter doesn’t mention anything about brand names or logos there, but he does in this part of his statement under the heading, “Divestiture of a Portion of the Business”:
In some cases, an accounting firm may contemplate the divestiture of a portion of its business or other form of restructuring where its intent is that the divested entity no longer is part of the accounting firm post-transaction. In such cases, OCA staff expects that, post-transaction, the accounting firm and the divested entity should, at a minimum: (1) adopt separate corporate governance, management and financial structures; (2) terminate all interests between the accounting firm and the divested entity; (3) not have any revenue or profit sharing between the accounting firm and the divested entity; (4) not have any co- or joint-marketing agreements or advertising arrangements (or equivalent) between the accounting firm and the divested entity; (5) prohibit the divested entity and its affiliates from profiting from the accounting firm’s name or logo prospectively; and (6) complete promptly any transition-related shared services between the accounting firm and the divested entity.
Nos. 4 and 5 pretty much nix what EY’s global brass wanted to do. Maybe they can try to sneak the name Young & Ernst with the brand YE by the regulators for the consulting firm. But they’d probably get sued by Kanye.
AFR wrote that the firm’s senior leaders are expected to make a recommendation by the end of August about whether to proceed with the split.
Regulator stymies bid by EY to share its $33.7b brand after split [Australian Financial Review]
Here’s the Deck EY Put Together to Sell the Audit/Consulting Split to Staff
EY Is Leaving $10 Billion in Consulting Fees On the Table If It Doesn’t Split, Says Global Chairman Carmine Di Sibio
Partners Stand to Make Millions (Maybe) If EY Breaks Up
Press cover on the EY deal cited in his footnotes. Munter for sure locked in.
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