EY plan to break up consultancy and audit divisions blocked by US office

theguardian.com:

EY has scrapped plans for a radical breakup of its global operations after internal disputes over the potential structure of the new businesses.

The company started laying the groundwork for separating its audit and advisory businesses – under the codename Project Everest – last year, as the big four accounting firms faced mounting criticism about conflicts of interest between the two divisions.

However, EY’s global executive committee confirmed that the plans had been blocked by US colleagues concerned about the structure of the business, including where its tax experts would sit within it.

“The global executive remains committed to moving forward with creating two world-class organisations that further advance audit quality, independence and client choice,” a note to staff signed by EY’s global executive committee said.

“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.

“[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,” the global executive committee wrote.

Politicians and regulators, in particular in the UK, have raised concerns that EY’s ability to challenge audit clients may be undermined by efforts to secure lucrative consulting, tax and deal advisory contracts from the same customers whose financial accounts they are meant to scrutinise.

The UK accounting and audit regulator, the Financial Reporting Council, ordered that auditing operations be ringfenced from the rest of EY’s businesses.