Back in 2020, the UK’s Financial Reporting Council (FRC) and regulatory watchdog for the accounting industry set a deadline of June 2024 for the Big Four accounting firms to go their separate ways.
Earlier this year, in what’s been described by The Financial Times as “the biggest shake-up of a Big Four accounting firm in two decades”, EY reportedly began taking steps to split its audit and advisory functions. This is a massive U-turn for the firm, whose previous Global Chief Executive Mark Weinberger was steadfastly against a split in 2018.
Though a partner vote is required and the entire process could take many months, we’ve taken a look at what this restructuring will look like – and what it could mean for the accounting industry.
Last year, EY was hit with a fine of more than £2.2m by the FRC – a penalty for failing to adequately challenge Stagecoach bosses when auditing their accounts for 2017. Further investigations by the FRC into the firm’s practices include audits for travel agency Thomas Cook, along with private healthcare company NMC Health. By making this move, EY hopes to escape regulatory action spilling over from the UK to the US.
Following the collapse of UK retailer BHS and government contractor Carillion, the Big Four were forced to enact an operational separation of their UK audit and advisory functions. However, EY’s proposal would go much further.
The big break-up
EY’s plans outline an audit-focused firm separate from the rest of the business, which would employ experts in specific areas to support company audits. The result would be two separately owned businesses – a much more significant change than the aforementioned operational separation of the Big Four’s UK audit and advisory functions.
At this moment in time, EY is committed to developing a structure that works for everyone. The firm, which employs around 312,000 people in over 150 countries, has advised, “We are in the early stages of this evaluation, and no decisions have been made.”
More work = more accountability
Historically, accounting giants have built up collaborations between their auditing and consulting businesses – sharing technology platforms, creating cross-functional teams to analyse complex problems together, and drawing on enterprise-wide data to refine processes. If EY is to split and other members of the Big Four follow suit, consulting and auditing branches will be forced to work independently, without the benefit of shared technology platforms or insight.
One way of combating this is to use AI technology to continue to streamline the auditing process, and ultimately close the gap between strategy and audit. While auditing teams have long been using sophisticated tools to process large volumes of data and maximise efficiency, the consulting side of the business will need to integrate this technology into their own approach – allowing them to better understand client risk exposures and improve their forecasting capabilities.
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