EY split could undermine audit quality, former partners warn
More than 150 former EY partners have written a letter to the accounting firm’s board, warning its plans to split in two could weaken both segments of the business and undermine EY’s audit quality.
The ex-EY partners noted the firm’s new standalone audit business – AssureCo – will have “significantly lower” earnings than its advisory business, as they warned AssureCo may lack resources following the split.
The partners raised concerns this lack of resources could in turn impact the quality of EY’s audit work, as they warned of the challenges auditors have faced in attracting and retaining the “level and volume of resources needed to conduct high-quality audits on a global basis”.
Critics of the split have previously argued new recruits may be reluctant to join EY’s slower-growing, and less profitable, audit business, without the prospect of switching into consulting.
The former partners said any threat to the quality of EY’s audit work could in turn see regulators take a harsher stance towards the split, which is aimed at freeing EY from the conflicts-of-interest problems that have troubled the Big Four for years.
“Whilst we understand that initial reactions to the Transaction from the firm’s regulators around the globe were favourable, we doubt this will continue if questions arise as to the appropriate level of resources and expertise remaining in AssureCo,” the letter says
The ex-EY partners also called on their former employer to keep all elements of its tax business together, as they noted the two lines of the operation have “always operated in a collaborative manner”.
They said the split could see EY’s audit segment – AssureCo – lose “valuable resources necessary to respond to audit client tax matters,” as they warned EY’s advisory business “will lose an important source of knowledge and on-the-job training for staff working in the tax area”.
The former partners argued “a strong tax service line is critical to the success of an audit firm” as they warned the split could mean neither practice has “the size, scale, and competence to be truly competitive in the market”.
They said EY’s plans to float its consultancy arm on the stock market could also see privately owned law firms and tax advisors begin to “pick off” staff that are “unhappy with the dynamics of working in a public company environment.”
The letter also notes that while it is presumed EY’s current chief executive Carmine DiSibio will lead the new consulting firm, it is “totally unclear” who will run the audit business, as it calls on the Big Four firm to “move forward with leadership decisions” and communicate them in a “transparent manner.”
An EY spokesperson said: “We appreciate the feedback from our retired partners. We are taking this bold step because we believe this will provide the best opportunities for growth and success and better serve EY people, clients, and broader stakeholders, including retired partners.”