1/27/2024 0 Comments Splitt crypto![]() ![]() EY had audited the software firm PeopleSoft at the same time the firm’s consulting arm profited from recommending PeopleSoft software to customers. The Securities and Exchange Commission suspended EY in 2004 from accepting new public-company audit clients for six months over auditor-independence issues that dated back to the 1990s. Longstanding US securities rules prohibit accounting firms from entering into certain business relationships with their audit clients if they were to share what’s known as a “mutual interest.” That means that profit sharing, jointly developing products or even advocating for a client’s work is out of bounds.įirms have learned the hard way to steer clear of arrangements that could threaten their independence from audit clients. “If you’re making $41 million off the audit,” she said, “how much could you be making off consulting?” Tech consulting is among the most heavily promoted consulting services offered by the Big Four, and such work is much more profitable than auditing, said Elizabeth Cowle, assistant professor of accounting at Colorado State University.Īlphabet last year paid EY $41 million for auditing and related services, she noted. It also audits small, nascent technology companies and has served as auditor to eight tech IPOs since 2018, according to PitchBook data.ĮY’s technology and digital transformation work contributed to a 25% spike in revenue for its global consulting practice last year. In addition to Amazon, Alphabet and Salesforce, EY’s audit clients include Intuit, HP, Workday and Apple. “So that’s been an inhibitor in terms of our growth in consulting.” “They’re also the companies we could have alliances with going forward on the ‘Newco’ side,” he said. The firm audits nine of the 10 biggest tech companies, DiSibio told CNBC in January while discussing the firm’s plans to carve out its consulting arm and much of its tax practice into a unit known provisionally as “Newco.” PwC, also known as PriceWaterhouseCoopers, KPMG and Deloitte are the other Big Four firms.ĮY has acknowledged the restrictions under which it’s working. Its buildup of software and tech clientele over the years means its potential for conflicts of interest is bigger than for the other Big Four firms, said Doug Carmichael, former chief auditor of the Public Company Accounting Oversight Board and an accounting professor at Baruch College. ![]() In some ways EY is a victim of its own success. “It’s on pause, it’s really on pause for a while, but it’s something that we’ll continue to look at over the next couple years.” “This was a way to disrupt our industry,” Carmine Di Sibio, the firm’s global chairman, said about the firm’s restructuring in remarks to a Milken Institute event Monday. Those conflicts and restrictions will remain as the firm confronts its future with audit, tax and consulting tethered together.ĮY didn’t respond to requests for comment for this article.ĮY leaders, however, have said that they still want to restructure at some point, committing to their argument that the practices would be stronger apart. “It really makes it impossible to enter into any kind of partnership or joint marketing, joint-service-provision type of an arrangement when you’re auditing that company,” Cathy Allen, who runs the ethics compliance firm Audit Conduct, said of US conflict-of-interest rules. The collapse of the ambitious plan puts EY back where it started: It’s restricted from promoting or jointly selling services offered by audit clients. Video: How EY’s Ambitious Split Went Awry and What Happens NextĮY’s leaders had sought to split up the firm so its $19.7 billion consulting and strategy practices could pursue such partnerships, freeing those businesses from rules intended to ensure that auditors provide unvarnished views of their clients’ financial health.
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