A possible split of EY into separate audit and consulting firms must confront the problem faced by all breakups: How do you create attractive businesses out of both when one is likely to be seen as inferior? Here, that would be the newly established standalone auditor.
EY—or any Big Four accounting firm that might attempt such a separation—has its work cut out to make pure-play audit a success.
The revelation by Michael West Media that EY is considering the move heralds a potentially seismic shift for the industry. A succession of accounting scandals has long prompted attacks on the Big Four for earning fees from audit clients by selling consulting services such as strategy or restructuring advice. There's an inherent conflict of interest in offering these to the same executives whose homework you're meant to be marking. While regulatory scrutiny is forcing firms to tread carefully, creating distinct companies is the most reliable remedy.
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