EY puts global split on hold following fight over tax business
EY’s plans to split its audit division from its consulting arm are on the brink of collapse amid a fight over the future of its tax business.
The Big Four accounting firm has “paused” its plans for a global split, in the face of fierce disagreements over the extent to which its tax division should stay with its audit business, the Financial Times first reported.
The head of EY’s US business, Julie Boland, told partners on a call on Wednesday that the firm’s split plans need to be reworked.
EY had planned to spin off the majority of its tax business into its newly separated advisory business – dubbed NewCo – made up of the firm’s consulting and advisory divisions.
This would leave only a minority of EY’s tax experts in the firm’s newly independent audit and assurance business – AssureCo – following completion of the global split.
EY’s US auditors have, however, called for a larger share of the firm’s tax business to be kept with the audit arm as it pushes forwards with the split plans dubbed Project Everest.
In a letter to EY last November, the firm’s former partners previously called on EY to keep all elements of its tax business together.
The former partners also warned that separating the tax business from the audit segment could harm the newly spun-out assurance business in seeing it suffer from a lack of expertise.
An EY spokesperson said: “This transaction is complex and will be the roadmap for the re-shaping the profession, so it is important we get this right.”
“We remain committed to the strategic rationale that underpins Project Everest and believe that a deal can and should be done.”
“As part of our deliberation and due diligence in connection with the proposed transaction, we are engaging in a dialogue with the largest EY country member firms to determine the final shape of the transaction,” the EY spokesperson said.
In separating its assurance division from its consultancy arm, the Big Four firm is aiming to free itself from the conflicts-of-interest rules that block it from selling advice to audit clients.
EY has previously claimed the split could let it’s advisory business bring in an extra $10bn a year in fees from Silicon Valley tech firms.
The split plans also come as the Big Four face mounting pressure from regulators worldwide over alleged conflicts-of-interest between their audit divisions – which are tasked with investigating clients accounts – and their more profitable advisory businesses which sell consulting services.
The accounting firm’s global split is set to come as the biggest shakeup to the Big Four in decades in what could become a model for other major players in the audit sector.
Critics of the split have previously warned it could undermine audit quality, by stemming the flow of talent into EY’s less-profitable assurance business.