Ernst & Young is to split its audit and consulting business acquiring new markets and managing the challenges. Ernst & Young is an auditing firm that works for consultation opportunities and auditing jobs. Recently, the firm announced the split of business. The new announcement came out at an odd time. Big five firms changed as big four because of Arthur Andersen’s case. The process and business changed only after twenty years. The change happens after the practical experience from the clients and regulatory bodies. The nuance and renaissance will follow the other auditing firms after the split of EY. A blog is here to talk about the hot news and envisage the changes.
Announcement of EY:
The 40 billion revenue has been restructured among the two types of businesses. The clients, competitors and investors have an interest in the company’s move. Further, the move requires support from regulators and partners. EY has described restructuring plans. The perspective of regulators after the split is towards auditing quality. The share and equity deal is two-thirds and fifteen per cent. The old capital share, the two-thirds amount, is for the equity of the newly formed company. Fifteen per cent of the equity is for staff incentives and investors. The services of the two types of firms are different. The consulting firm and profitability are the hope for the split. The conflict of interest is not problematic as the two businesses have different clients and employees. McCarty, CEO of West Monroe, says that the business connection of the firm will fade after the service separation.
Multidisciplinary services of EY:
Consultation services transform the business with new technology and innovative ideas. The evolving nature of business demands agile, innovative, collaborative and adopting new behaviours. In India, people spend quality time on the internet. The economic survey of 2022 says that 830 million viewers use the internet daily. In connection to the number of users, corporations create software applications for internet users. The data and applications contribute to technological advancement. The fin-tech had created 20+ unicorns. More investors are interested to back the fin-tech industry in India. Multidisciplinary services will help mergers and fin-tech companies. The different services of consultancy firms are secretarial, accounting, auditing, systems control, risk management, legal, and valuation and risk assessment. The fee for the non-audit services is comparatively small. Non-audit services promote auditor independence. In the long run, non-audit services will end up adding value to the firm.
Auditing services of EY:
The following points illuminate the auditing services of EY:
• The landscape of capital markets is changing day by day. It is crucial to understand the stringent regulations, competition, and digital transformation.
• Leading audit firms are designing business models and adopting the new technologies that initiate the changes.
• Auditors need to be qualitative and judgemental. The process of auditing is becoming more complex.
• Stakeholders and investors believe in the quality of the EY audit. Transparency, decision-making, and value are the qualities of the EY audit report.
• EY auditing has a global scope and quality structure.
• EY is good at conducting the digital audit. The tools are up to the market level.
Conflict of interest in auditing and consultation services:
The Sarbanes-Oxley act says that all internal and external financial reports need to have an internal control system. This control is for accuracy. Legal problems, technology issues, restructuring, and governance processes are handled with expert guidance from audit firm consultation. It avoids the subject related to tax evasion. Consultancy is not for tax evasion but it is for the legal side of taxation. From 2003, Deloitte firm focused on the consultation business. The decision is to balance the issues arising from the conflict of interest and the SOX Act.
Why are high growth opportunities with consultancy services?
The cost accountant or chartered accountant or any other person with professional qualifications can become an internal auditor. Consultancy services provide management advice and evaluate the checkpoints with internal auditing. There are huge scopes and opportunities for internal audit professionals. The objectives, risk management and implementation are the core area of focus for consulting companies. The taxation job is for the creativity part of the chartered accountant. The deliverables of a job are deadlines for the professionals. Audit work engages the chartered accountant with evidence-based checks. Consulting services enhance the leadership qualities and problem-solving attitude of the professionals. The job of auditing is with a limited number. Auditing job takes fixed working hours. A consultation job takes more time. Consultant job is for a different types of clients. Consultants travel comparatively high than auditors. Consultants are experienced in other areas such as finance, banking, corporate management, the public sector and start-up economy.
Internal audit is on the following aspects:
• It is based on real-time problems and not based on the past. It incorporates technology and innovation for business challenges.
• Internal audits advise the management on risk management, assurance mechanism, control points, and changes to plans.
• Internal audits anticipate the risk and create awareness for the team.
• Evaluate the amendments of the regulatory compliances.
• Arrange for the training of staff.
• Evaluate the fraud activities and design anti-fraud programs.
Organisational restructuring requires planning and operational changes. The following points say about the planning part before restructuring:
• Job satisfaction and employee performance reviews are critical areas of focus after restructuring.
• The delegation of responsibility is as per the restructuring plans.
• Redesigning jobs as per the market demand.
• Strategies to capture the market after the restructuring.
Conclusion:
Ernst and the Young business split is a trendsetter to the other firms. After the split of Ernst and Young, the success and failure of the services are known as per the performance. Companies revive after covid-19 with the challenges and growth. Advisory services are needed to implement the changes and cope with the challenges. The hope is that auditing and consultation services both have the same demand. If there is demand, EY earns profits and handles both services efficiently.
