"It's not you, it's revenue." EY is breaking up!

Video by Neeraj Arora

Write-up by Satvik Trivedi

So one of the Big 4 accounting firms Ernst & Young (EY) is proposing the split-up of its lower-growth auditing business from its fast-growing consulting business.

If you want to know what's happening, check out the attached image. The reasons for this split are -

1. Regulators have been raising concerns over a perceived lack of independence in their auditing due to conflict of interest as they also generate revenue from advisory/consulting business in domains of tax, internal controls, etc.
For example: Section 144 of the Companies Act, 2013 prohibits the auditor from rendering certain services like investment advisory, management services, etc.

2. Public Image of the company: every entity wants to work with fairness, transparency and accountability. Hence it would want to ensure the independence of it's auditor to gain public trust. This would result in lower consulting revenue from auditing clients.

3. In tune with point 2 above, lawmakers have introduced regulations like the Section 141(3) of the Companies Act, 2013. It states that a person having business relationship with an entity cannot be appointed its auditor. This again, hurts the revenue of auditing firm.

I hope that this write-up was simple enough for anyone to understand this split in somewhat detail. Do check out the attached image.

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