EY thinks to inspire other audit firms with its proposed split

LONDON (Reuters) – Plans to split firm EY into two firms, one specializing in audits and the other in consultancy, will “inevitably” be emulated by its three main rivals, said global managing partner Andy Baldwin in a Reuters Breakingviews podcast.

EY is touring to make a “compelling case” for the company’s third spin-off attempt, he said, to garner support from associates around the world in votes to be held in during the first quarter of 2023.

This split would be the biggest upheaval for the sector since the collapse in 2002 of Arthur Andersen, the firm that fell on the Enron affair and reduced the “Big Five” to four: PwC, Deloitte, KPMG and EY, formerly Ernst & Young.

“It was an appropriate time to dust off the work we had done before,” Andy Baldwin said.

“I now think it’s unavoidable. We believe there is a first-mover advantage. We also believe the competition will at some point have to respond,” he added. However, some of the “Big Four” have declared that they have no intention of following EY.

Opponents of the EY split warn of the risk of seeing the audit business suffer at the expense of the traditionally more lucrative consulting business. EY says the split will make it easier to raise capital to invest and create two more nimble companies.

“We want our insurance business to be as successful in the future as it has been for the past ten years,” said Andy Baldwin.

Rejection by the partners of the content of the agreement would be a problem, he added.

If however the transaction were rejected due to the instability of the financial markets at the moment, it could be the subject of a new vote at a later date, since the fundamental elements of the transaction will not change, specifies- he.

“So our plan is to continue what we call the soft separation next year, and to continue to run these two businesses separately, although they will continue to be part of the single EY business.”

(Reporting Huw Jones; French version Dagmarah Mackos, editing by Kate Entringer)