EY calls off plan to split audit, consulting units

Offices of accountancy firm EY.

Accounting firm EY has called off a plan to break up its audit and consulting units, slamming the brakes on a proposed overhaul of its business that was meant to address regulatory concerns over potential conflicts of interest.

The company, which is one of the Big Four accounting giants, announced its plans for a split in September after regulators voiced concerns that the audit arm would not do its job fairly for its client if it also employed EY as a consultant.

But the plan, code-named "Project Everest", faced resistance from some of EY's partners. The company said its US Executive Committee decided not to move forward with the split.

“The global executive remains committed to moving forward with creating two world-class organisations that further advance audit quality, independence and client choice,” they wrote.

“However, we have been informed that the US executive committee has decided not to move forward with the design of Project Everest. Given the strategic importance of the US member firm to Project Everest, we are stopping work on the project.”

Details of the u-turn were first reported in the Financial Times. 

Had the split been ratified, it would have been the biggest overhaul in the accounting sector since the 2002 collapse of Arthur Andersen, the auditor that was mired in the Enron scandal and whose downfall reduced the Big Five to Big Four.

UK auditing and accounting regulator, the Financial Reporting Council, had asked the Big Four firms in 2020 to separate auditing as a standalone business in Britain by June 2024.

Julie Boland, who runs the US firm, threw the future of the project into doubt last month by calling a “pause” to planning work.

The split was first raised internally in 2021 when consulting businesses were experiencing historic growth on the back of a boom in corporate IT transformation projects as a result of the coronavirus pandemic. However, valuations have since tumbled and debt costs have risen, complicating the financial projections EY was using to plan Project Everest.

“We always knew Project Everest would be a challenging journey,” the global executive committee wrote. “[We] will begin taking actions based on what we have learned from the work done over the past year – actions that will both benefit our businesses today and better prepare us for a new transaction.”