EY has “paused” its plan to split in two amid a fierce dispute over how much of its tax business should stay with the audit side of the firm.
Julie Boland, the head of EY’s US business, who has been picked to run EY after it spins off its consulting arm, told partners on a call on Wednesday that the deal needed to be reworked, according to people familiar with the matter.
The US business accounts for about 40 per cent of EY’s $45bn in annual global revenues, giving it strong negotiating power in internal talks over the split.
The break-up was designed to liberate EY’s consultants and much of its tax practice from independence regulations that prevent them from advising the firm’s audit clients, which many see as a drag on growth.
EY had planned to spin off the majority of its tax practice into a new group containing consulting and other advisory service lines, leaving only a minority of its tax experts in the audit-dominated firm after the separation.
However, auditors in the US have been campaigning for a larger portion of the tax practice to be retained within the audit arm after the split, people with knowledge of the matter said.
EY’s global leadership decided in September to pursue the spin-off and initial public offering of the consulting arm, in a deal it has dubbed “Project Everest”.
But votes on the plan by EY’s 13,000 partners have been delayed repeatedly while the firm tries to iron out disputes over the details of the split, against a backdrop of falling market valuations. The most recent plan had been to hold votes in roughly 75 countries in late April or May.
During Wednesday’s partner call, Boland expressed a desire to move forward with the split, said two of the people familiar with the matter, although it was unclear how long the pause may last.
But her comments are a clear indication of the tensions that have simmered during internal talks, which have effectively pitted two sides of the business against each other.
Responsibility for legal liabilities, the terms of non-compete agreements and exactly how many of EY’s 150-plus countries should be included in the consulting arm have been among the issues debated within EY in recent weeks.
Boland’s intervention will pile pressure on EY’s global chair and chief executive Carmine Di Sibio, who has been chosen to lead the standalone advisory business if the split goes ahead.
Under the existing plan, tax was intended to account for about 14 per cent of the audit side of the business globally, a figure that was now likely to increase to about 20 per cent or 25 per cent, one person with knowledge of the talks said.
The figure is likely to be higher in the US, where accounting firms are allowed to offer more tax advice to audit clients than in many other countries.
EY’s US auditors have been pushing for more of its overseas tax practices to be retained in the audit firm as well so that they can work for international subsidiaries of crucial US clients.
EY said in a statement: “As part of our deliberation and due diligence in connection with the proposed transaction, we are engaging in a dialogue with the largest EY country member firms to determine the final shape of the transaction.
“This transaction is complex and will be the road map for the reshaping the profession, so it is important we get this right. We remain committed to the strategic rationale that underpins Project Everest and believe that a deal can and should be done.”