September 24, 2022

Some Folks at EY Spent Labor Day Working Out the Details of the Audit/Consulting Split

The Wall Street Journal is reporting that the EY split is moving forward thanks in part to the big wigs getting together over the holiday weekend to hammer out the plan.

Ernst & Young’s leaders are expected this week to give the green light to splitting its auditing and consulting businesses, paving the way for the biggest shake-up in the accounting profession in more than 20 years, according to people familiar with the matter.

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.

A spokeswoman told WSJ that discussions were continuing and that “at this time, no decision has been made on moving to the next phase.”

Just how much do partners stand to make from this deal? People WSJ have spoken to say audit partners will receive cash payouts of two to four times annual compensation or more than a million dollars each for the typical U.S. and U.K. partners, who earn on average $850,000 to $900,000 a year. Consulting partners will receive shares in the new company worth seven to nine times their annual compensation or thereabouts, paid out over five years. And then there’s EY Global Chairman and CEO Carmine Di Sibio who has been in the firm’s top spot since 2019, he will likely receive tens of millions of dollars in the deal. No wonder he’s so pro-split.

There will be benefits for others, too. So says the firm anyway.

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.

ICYMI: this is the deck EY put together to sell the audit/consulting split to staff, in one slide the firm suggests the split would allow for better mobility and faster promotions.

People who picked up the phone to talk to WSJ for their article say other firms may start seriously considering splits of their own, especially when the payouts start coming. WSJ already floated a rumor that Deloitte was considering a split — which Deloitte denied — and PwC Global Chairman Bob Moritz has repeated that PwC has no plans to split. In fact, he kinda threw shade about it. “The partnership has the responsibility to build for the partners yet to come,” he told FT in July.

The split is still expected to happen some time in late 2023.

Ernst & Young Leaders Expected to Approve Plan to Split Accounting Company [Wall Street Journal]

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4 Comments

  1. For a Firm that has forgotten the true meaning of values, purpose, DE&I and culture…sometimes it is all about $$$.

  2. The spin going on over at EY is “EY’s strategy carries significant risks as well as potential big upsides.” Upsides? Not for the audit boys. How many partnerships have you seen break up because things are going so well they just can’t stand it? The real reason is the audit side is getting their rears kicked with SEC fines and lawsuits. These guys did author the most worthless piece of paper in human history also known as the Lehman Bros. audit report. The consulting partners are just plain tired of writing checks for national firm incompetent auditors and risk based standards . Now, look who is behind this whole risk based audit standards crap at the AICPA and the picture starts to become clearer. Just another day of national firm audit chicanery and the AICPA. The consulting partners have had enough. I don’t blame them. Think!

    1. Lehman Brothers, really? That was 14 years ago, 80%+ of today’s EY people weren’t with the firm at that time.

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