The cancellation of EY’s Project Everest, designed to split its audit and consulting business, has brought into open the debate around such restructuring and the difficulties surrounding it, with most firms asserting that they do not see any merit in doing so. The global heads of two of the big four firms, PwC and Deloitte, have asserted that they would not go for a split and stick to a multidisciplinary strategy.
Deloitte Global CEO Joe Ucozoglu recently said in a video message, “Our multidisciplinary model is allowing us to deliver incredible impact across so many different stakeholders…We have unanimous alignment around our commitment to the multidisciplinary private partnership model, and it's not even a close call.”
Ucozoglu said history is littered with examples of grand aspirations around these types of transactions, but they have never once played out as intended.
EY Global in its recent statement on its Project Everest said, “We acknowledge the challenges with separating some of our businesses that have the deepest technical expertise in a way that gives both organisations the capabilities they need to compete in the market effectively.”
Experts said that audit now is not a simplistic exercise and involves a lot of analytics, artificial intelligence, automation, forensics and tax expertise.
“It is an ecosystem that delivers the audit. Greater audit quality needs a variety of skills that can be provided through a multidisciplinary structure,” a senior executive at a Big-4 firm said.
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One of the big challenges for an audit-only firm is access to required expertise and talent. Audit usually becomes a good segway for professionals to get a chance to get into other areas of work such as due diligence, mergers and acquisitions among others. It helps firms to attract talent by offering greater career opportunities.
“Largely people train in audit and go into taxation, deals, due diligence. Where will all those future people come from? Would trainees join if it was an audit only firm?,” said Vishesh Chandiok, chief executive officer, Grant Thornton.
In India, many firms have voluntarily separated audit and non-audit services for their clients, especially public sector enterprises. Experts say all professional firms have to manage this conflict, including law firms and investment banks. “We don't need to be everything to everyone. And this clearly has not constrained the ability to grow all of our practices at extraordinary rates,” said Ucozoglu.
While there is a perception that audit is less lucrative compared to advisory services, and often subsidised with the profitability of other practices, most experts feel that audit business is self-sustaining. Traditionally though, some experts say that audit was the loss-leader. Firm would enter through an audit and then sell consulting to the same client.
“Audit is a steady ship while advisory business has peaks and troughs. It is a long term relationship,” another big four executive said.
A company is allowed to retain the same audit firm for a maximum of ten-year period, with a renewal process after five years. After ten years, there has to be a mandatory rotation of the audit firm. Section 144 of the Company Act also prescribes certain services which a statutory auditor is barred from performing for the audit client.
