EY approves plan to split audit and consulting firms

Ernst & Young's leaders have approved a plan to separate the Big Four firm's audit and consulting businesses around the world.

The proposal has been in the works since at least May, when global chairman and CEO Carmine Di Sibio began pushing the firm to unlock the potential revenue from spinning off the lucrative consulting practice (see story).

It's now up to EY's 13,000 partners and its member firms in approximately 140 countries to approve the split. The vote is expected to happen later this year and early next year. The Big Four firm will also need to receive approval from regulators in multiple countries, including the U.S., where the New York-based firm is headquartered.

"This is something that will change the industry," Di Sibio told The Wall Street Journal in an interview Thursday. To pay for the proceeds for the partners, he said EY plans to raise around $11 billion by selling a 15% stake in the consulting company through the capital markets, and will also borrow approximately $18 billion. Di Sibio is expected to postpone his retirement, which was scheduled to start next summer, and said he would do what the board tells him to do.

"EY's strategic review of its businesses has progressed, and EY leaders have reached the decision to move forward with partner votes to separate into two distinct, multidisciplinary organizations," the firm said in a statement emailed Thursday to Accounting Today. "The next steps include ongoing engagement with partners to provide them with more information in advance of the voting process. We expect this phase to continue through the end of the year, with voting expected to begin on a country-by-country basis in late 2022 and conclude in early 2023."

"Having carefully considered various options, we firmly believe that we can embrace the changing landscape, build businesses that redefine the future of our professions, create exciting new opportunities, and deliver greater long-term value for EY people, clients and communities," said the firm. "EY is proud of its legacy as a leading global professional services organization. The world is changing, and we have to adapt to continue to thrive and achieve our full potential, while we address the needs of all of our stakeholders. We look forward to engaging with EY clients, people, partners and stakeholders to share our bold vision for the future that amplifies our purpose of building a better working world."

The debate over what to do with partner compensation has been a sticking point, and the WSJ reported that audit partners could receive a cash windfall worth up to two to four times their annual compensation, but consulting partners could see their overall compensation change since it will be paid in shares of the spinoff company over the next few years, and will depend on how well it performs in an uncertain economy.

EY reported record revenue of $45 billion for fiscal year 2022, up from $40 billion last year. But the firm has also been experiencing problems with its audit business in other parts of the world, especially in Europe, where it has been sued for its audits of the defunct payment company Wirecard in Germany and health care provider NMC Health in the U.K. However, Di Sibio denied that was a factor in the decision to split the firm.