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January 27, 2023

EY Threatens to Raise Audit Fees ‘Cause the Mean Ole Government Keeps Busting Their Balls

I buried this story in Footnotes last Friday but thought it deserved its own post because A) it’s interesting and B) Bramwell is on vacation this week, leaving me to run the show and find enough crap to write about. So here we are.

Sky News reported last week that they obtained a letter from one Hywel Ball, EY’s UK audit boss, which he’d sent around to various clients letting them know that “unprecedented market forces” could make the firm take drastic steps to hike up audit fees.

In his letter to EY audit clients, Mr Ball said costs associated with recruiting sufficient numbers of trained accountants, investments in technology and compliance requirements based on regulatory scrutiny had led it to conclude that fees would increase.

I suppose now is as good a time as ever to mention that it was only about a year ago EY announced record worldwide revenue of $34.8 billion, along with growth across each and every service line. Add to that, a humblebrag about “21 acquisitions in EY, which expanded the organization’s professional skills and capabilities in areas like digital, data, analytics, strategy and cyber.” LOL @ cyber (has anyone used that since 1998?) but let’s move on.

From the September 13, 2018 press release:

EY today announces combined global revenues of US$34.8 billion for the financial year ended June 2018. Overall, financial year (FY) 2018 revenues grew by 7.4% in local currency and 11% in US dollars (versus FY17). All EY service lines delivered strong growth in FY18: in local currency Assurance grew 4.4%; Advisory 10.1%; Tax 6.4% and Transaction Advisory Services (TAS) 13.9%. Over the five years since the launch of its Vision 2020 plan in 2013, EY has recorded strong 8.5% compound annual growth.

I dunno call me crazy but compliance and recruiting sounds more like a them problem.

The bad news for clients comes ahead of the implementation of a new governing body to replace the Financial Reporting Council in the U.K. The new Audit, Reporting and Governance Authority will be empowered to do all kinds of cool stuff that weak ass FRC never could, such as:

  • be a statutory body with powers such as those to direct changes to accounts to be made, rather than applying to court to do so, and more comprehensive, visible reviews for greater transparency
  • have strategic direction and duties to protect the interests of customers and the public by setting high standards of statutory audit, corporate reporting and corporate governance, and by holding companies and professional advisors to account
  • regulate the biggest audit firms directly (rather than those being delegated)

On top of that, the ARGA promises “greater sanctions available in cases of corporate failure, including new powers to require rapid explanations from companies and in the most serious cases publish a report about the company’s conduct and management.”

So grease up, clients, y’all bout to get regulated.

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