Big 4 firm EY is considering splitting its audit and advisory businesses into two following global investigations over conflicts of interest, according to the Financial Times and The Wall Street Journal, citing three people familiar with the discussions.
“We are in the early stages of this evaluation, and no decisions have been made,” EY said in a statement to Bloomberg. “Any significant change would only happen in consultation with regulators and after votes by EY partners.”
Exactly how it would work is unclear. Regulators in the U.S. and elsewhere, particularly the U.K., are looking into Big 4 reliance on consulting and tax services, which are more lucrative than audit work. Audits must be independent, and the SEC has publicly warned firms not to “creatively apply” the rules. A sweeping, ongoing probe, which began in March, is being conducted of all Big 4 firms and some super-regional firms such as BDO and RSM.
Despite the 2002 Sarbanes-Oxley Act, which created strict conflict-of-interest rules in light of the Enron and WorldCom accounting scandals, the Big 4 have built huge consulting practices. PwC’s U.S. members, however, restructured last year to bring its tax and audit compliance work under a single service line and move tax advisory into consulting, Bloomberg reported.
In the U.K., Big 4 firms are already spinning off their audit functions following demands by regulators. A number of scandals – including the implosion of construction contractor Carillion and café chain Patisserie Valerie – have drawn outrage and resulted in millions in fines.