The accounting and consulting firm Ernst & Young Israel (EY) is expected to reject the move promoted by the global Ernst & Young to split the classic accounting activity of the member firms of the network around the world and the consulting activity of the firm. This, according to the firm’s executives, is due to “unreasonable damage that may be caused to clients as a result of the move” as well as “tax problems that may arise in Israel following the splitting of the consulting activity into a separate company.”
The move to split the consulting activities from the “classic” accounting activity, the auditing and editing of the reports, took shape in the last year in the global network EY, which is one of the four leading firms in the world (Big 4), and was recently approved by the management of the network.
● Ernst & Young is expected to approve a plan to split the company
● More vacation days: the month of the collective agreement at the accounting firm EY Israel
● Ernst & Young was fined $100 million following an investigation into cheating on ethics exams
The EY Israel firm includes 150 partners and approximately 2,000 employees and is among the top 30 countries in the global EY network.
“There is no certainty that the split will happen”
According to CPA Sharon Shulman, chairman and CEO of EY Israel, this is a process that has not yet matured even in the global firm, and may not materialize in the end. The firm’s consulting – including tax consulting and the SAT (transactions and strategy department) – for a new company that will be issued on the stock exchange. In the next step, a vote should be held in all the countries, among the partners in each firm, after the entire plan and its consequences have been presented to them. Each firm is independent and holds a separate vote.”
Prof. Sharon Shulman, Chairman and CEO of EY Israel / Photo: Histadrut Spokesperson
In Israel, the vote has not yet been held, as is the case with EY firms in other countries. Therefore, says CPA Shulman, “There is no certainty that the split will happen. This is one of the most complicated and complex transactions, and there is a considerable probability that it will not come to fruition, either because the partners will not support the plan in the various countries, or because the capital market will not support it, in the ability to raise capital and raise debt. So we are currently with a plan before partner votes and before the test of the capital market, and before we know if it will happen.”
However, tests have already been conducted at EY Israel on the impact of the split on the firm and its clients in Israel, and the results tip the scales in favor of rejecting the plan, as it could harm the firm’s clients and revenues. EY Israel senior executives conveyed this message to their colleagues in the EY Global management.
“In the internal discussions we are conducting with the global firm, we expressed our concern that this move is not good for our firm’s clients in Israel,” says CPA Shulman. cutting, and it is based on an operating model in which we on the one hand provide a wide spectrum of services to our clients and our ability to identify the client’s challenges, and on the other hand to adapt solutions based on both audit and consulting as well as economics. We call it ONE EY.”
One Stop Shop
In the last decade, all the Big 4 firms in Israel and in the world have moved to a similar model of a One Stop Shop for the client – a model according to which the client does not only receive audit services that were the leading core of the accounting firms in the past, these are a set of tax consulting services and business and financial consulting. The leading departments in most of the large firms in Israel today are precisely the departments of the ancillary services – which are provided to both audit clients and non-audit clients. According to estimates, this ongoing procedure has resulted in a situation where today the volume of non-audit services varies between 60% and 70% of the revenue volume of the firms in Israel.
EY Global’s program seeks to make a completely opposite move to the trend that has dominated for the past decade. According to CPA Shulman, “the trend of providing full and comprehensive service to clients is a trend that has happened throughout the accounting market in the world. All the Big 4 in the world went for what is called the multidisciplinary approach and provide a variety of services – including consulting, taxes and economics.
“EY Global is now considering an alternative structure, but the current structure has led us to impressive success, because this is how our clients want to be served. We told the global firm in the internal discussions that at EY Israel the damage to our clients would be unreasonable if we went with this move. There is also a significant tax problem in Israel If we go for partition, that’s why we announced that from Israel’s point of view this is a very difficult problem.”
Besides EY Israel, the firm in China is also considering rejecting the plan offered by the global firm. “This is a very dramatic issue, a lot of consideration is invested in it, and many countries have not yet decided whether to proceed with the split or not. We will not know what has been decided in the majority of the country until the partners vote,” says Shulman.