EY calls off global audit and consulting split – for the time being

Global professional services firm EY has called off ‘Project Everest’ – a plan that would see the group split into an accounting and consulting firm in more than 100 countries.

Following months of internal resistance, the plan for the biggest carve-out in professional services history has been halted – at least for the time being.

EY unveiled its split plan in September last year, after regulators voiced concerns about potential conflicts of interest between work delivered by auditors and consultants. EY’s top leadership also said that a standalone consulting arm would be in better shape to bag major contracts at large accounts where they currently are barred from working.

Project Everest was supported by EY’s top global leadership team, but over the past months the carve-out strategy faced repeated setbacks. A number of member organisations said they would resist the plan within their own territories (with China and Israel the most notable examples), and in the firm’s US business (which brings in about 40% of EY’s $45 billion revenue) partner disagreements.

Key areas of discussion included compensation agreements between EY and the ‘NewCo’ (the consulting business) and how to divide the Tax division. The thorny logistics of divvying up assets and legal liabilities and shoring up pension payments added to the challenge of separating the US$45 billion operation across 75 different jurisdictions.

In a remarkable turn of strategy, EY has now confirmed that the plan has been dumped, shortly after the US Executive Committee decided not to move forward with the split. “Given the strategic importance of the US member firm to Project Everest, we are stopping work on the project,” EY said in a statement.

However, in a meme to partners, EY’s leadership team said that the rationale behind the carve-out plan remains strong and that EY is still committed to “creating two world-class organisations that further advance audit quality, independence and client choice”.

Behind the scenes, leaders plan to continue to lay the groundwork for a possible split, but admitted that more time and investments will be needed to make that a reality.

Fiona Czerniawska, CEO of industry analyst Source Global Research, said that the strategy underpinning EY’s thinking still makes sense. “Clients are still looking for different delivery models, and EY’s specific constraint – the extent to which the firm can partner with big technology firms – remains just as urgent an issue to resolve,” Czerniawska said in a statement. “We should therefore expect to see alternative, perhaps smaller-scale options being floated in the future.”

If the plan does materialise in the future, it would be the biggest overhaul in the accounting and consulting sector since the 2002 collapse of Arthur Andersen, whose downfall reduced the Big Five to Big Four.

In the aftermath of the scandal, three of the Big Four sold their consulting business, including EY, which shed its advisory arm to Capgemini. Having rebuilt the business over the past two decades, EY’s consulting business now generates around half of EY’s $45 billion total (the precise number depending on how Tax is split to complement the Advisory and Strategy & Transactions divisions).

The halt on Project Everest was first reported by the Financial Times, which has been watching the developments closely.