The Wall Street Journal, which previously reported that EY is considering splitting off its consulting business, now reports that Deloitte is also exploring the idea. However, after publication on June 8, a Deloitte spokesman denied the firm was looking into a spinoff, saying “We remain committed to our current business model.”
The newspaper, quoting people familiar with the matter, said Deloitte reached out to investment bankers at Goldman Sachs Group after news broke of fellow Big 4 firm EY’s potential split. Goldman and JPMorgan Chase are advising EY on its possible restructuring, the people said.
If the moves are made, they would come amid growing international scrutiny over possible conflicts of interest, as audits must remain separate and independent from advisory work. Potential violations of independence rules by the Big 4 are subject of an ongoing SEC investigation.
Massive changes like these would take well over a year. EY, for example, would need to work out a split with regulators around the world, as well as get the majority of partners in 140 countries to agree to the new structure. The Journal report says, “Its ability to do that may rest on the size of the price it can get for the consulting business, which will support the payouts it can offer to partners, accounting industry observers said. The size of those windfalls is expected to vary depending on partner seniority, with those closest to retirement likely to get the most.”
Lynn Turner, a former SEC chief accountant, told the Journal, “The biggest question is ‘how much money would this deal put in the pockets of the remaining audit partners?’ If they can’t sell the consulting arm for enough to generate sufficient cash for the partners, they’re not going to vote to approve it, it’s as simple as that.”
KPMG and PricewaterhouseCoopers say they will stick to their existing business model.