EY Decision to Call Off Auditing Split Leaves Investors Stranded

Alarm bells are ringing for investor protection advocates following the news that EY is abandoning its plan to split its consulting and auditing businesses, known as Project Everest. The high-profile failure sets a bad precedent for other Big Four firms to take on similar splits, despite the dire need for greater auditor independence in an industry that’s perceived as increasingly untrustworthy.

EY, Deloitte, KPMG, and PwC play an essential role in keeping financial markets intact and providing a bedrock of trust for investors in the prospects of a company. That bedrock has been eroded in recent years, as these firms have grown massive and employ consulting arms that often consult for the very same firms they’re auditing.

This trend has laid bare a mountain of conflicts of interest concerns borne out in recent lawsuits exposing the lengths auditing firms will go to cover up for their consulting clients. Securities lawsuits and regulatory agencies have exposed abject failures to provide effective and honest audits, but given the global reach of the Big Four, they likely are only the tip of the iceberg.

Now that EY has deserted any plans to assuage these concerns through a thoughtful split, it’s created a contentious environment for other firms to pursue well-advised efforts to separate their business lines. Investors are left to navigate a field of potential landmines in the enormous roster of clients that the Big Four boasts, where auditor independence is understandably in question.

The status quo of clients engaging with one firm for consulting and auditing has enabled breaches of fiduciary duties, misstatements, and fraud that only have served to roil investor confidence and markets overall.

In the aftermath of SVB’s fall and KPMG’s preceding erroneous clean bill of health, more than ever, the accounting industry needs bold leadership to restore effective, trustworthy audits. EY’s split would have been a watershed moment in regaining a semblance of auditor independence. Unfortunately, the breakdown of Project Everest leaves countless investors stranded.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Laura H. Posner is a partner in Cohen Milstein Sellers & Toll PLLC’s securities litigation and investor protection practice, as well as its ethics and fiduciary counseling practice. Prior to joining the firm in 2017, she was the bureau chief for the New Jersey Bureau of Securities.

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