EY Reviews Split of Audit and Advisory Divisions... Biggest Structural Change Among Big Four Accounting Firms

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] Ernst & Young (EY), one of the global Big Four accounting firms, is reportedly considering separating its audit and advisory divisions. This decision comes in response to regulatory authorities in the US, UK, and other countries raising concerns about conflicts of interest within accounting firms. If finalized, it is expected to bring the biggest change in 20 years to the market structure dominated by the Big Four accounting firms: EY, Deloitte, KPMG, and PwC.

According to the Wall Street Journal (WSJ) and other sources on the 26th (local time), EY is currently reviewing options to restructure its global operations. Although specific plans have not yet been finalized, sources indicate that the audit division may be separated from other divisions, with tax advisory services included in the audit segment, while consulting and other advisory services might be targeted at companies that do not undergo EY audits.

Foreign media reported that if EY separates its audit and advisory divisions, it would represent the most significant change in the global Big Four accounting firm structure formed after the dissolution of Arthur Andersen in 2002.

The reason EY is considering this separation is due to raised concerns about the independence of audits. The US Securities and Exchange Commission (SEC) is currently investigating conflicts of interest involving the Big Four accounting firms. The issue arises because accounting firms receive fees from companies for consulting or tax and merger & acquisition (M&A) advisory services while simultaneously conducting audits for those same companies, leading to ongoing conflict of interest concerns.

Concerns about audit integrity have grown especially as reliance on the highly profitable advisory divisions has increased. According to data cited by WSJ from a data provider, revenues from consulting and tax advisory services of the Big Four accounting firms reached $115 billion (approximately 145.5 trillion KRW), more than double the $53 billion earned from audit services.

EY recorded global revenues of $40 billion last year, with $13.6 billion coming from audit services. EY employs over 310,000 staff across more than 150 countries. A source stated, "We are trying to find a structure that works for everyone," adding that this process could take several months and that it is not yet certain whether the final restructuring will take place.

In response, EY stated, "We are still in the early evaluation stage and no decisions have been made," adding, "Any decision will be made following a vote by EY partners."

This content was produced with the assistance of AI translation services.