EY has overhauled its UK leadership and split the governance of its audit practice as part of measures to improve quality following sustained criticism of the accounting industry from regulators and politicians.
The Big Four firm announced new heads of its audit, assurance, consulting and tax practices on Monday, prompted by the appointment of Hywel Ball as chairman and managing partner of the firm in the UK and Ireland. Mr Ball, who was head of audit and assurance, will take over from Steve Varley, who has run the firm for nine years, at the start of July.
EY said it would split the roles governing its audit and assurance practice in “recognition of the societal importance of these functions” and to “ensure that audit quality continues to receive dedicated focus”. Andrew Walton, an EY partner for 15 years, will become the new head of audit in the UK and join its board of directors. Kath Barrow will lead EY’s assurance practice.
However, EY stopped short of dividing the practice into two separate units, a move undertaken by rival PwC last year. Mr Ball said: “Audit quality is a key priority for EY and Andrew brings 29 years of audit experience.” As part of the leadership shake-up, energy and resources leader Benoit Laclau has been appointed EY’s UK head of consulting and insurance tax partner Jeff Soar has taken over the UK tax practice. The move to split the audit and assurance roles comes in response to claims of conflicts of interest and poor working practices in the profession. Auditors have been accused of failing to review their clients’ books with sufficient scepticism after a series of accounting scandals at high-profile UK companies including Carillion, BHS, Tesco, BT and Patisserie Valerie. EY is under investigation by regulators over its audit work for failed travel operator Thomas Cook and NMC Health, a former FTSE 100 company that was engulfed in a scandal over hidden debts and put into administration in April.
The government is reviewing proposals that could force the Big Four firms of EY, Deloitte, KPMG and PwC to financially separate their audit and consulting practices in order to remove any incentive to pander to company management during an audit. About 19 per cent of EY’s UK revenues are generated by its audits.
Last year the practice made £453m of revenue and £68m of profit. The firm audits 71 companies in the FTSE 350, including oil major Royal Dutch Shell, Royal Bank of Scotland and supermarket chain Sainsbury’s.
In line with its rivals, EY has cut the monthly profit payments distributed to its UK partners by 20 per cent to help weather a drop in fees during the coronavirus pandemic. EY’s 702 partners in the UK were paid an average of £679,000 last year.
The firm said last month it would “do everything possible” to navigate the crisis without redundancies, furloughs or reducing salaries for its 17,000 UK staff. However, it has ordered some staff to take annual leave this month due to a decline in consulting work.
Sourced from Financial Times