Deloitte restructuring plans are non-existent. At least that is what one of the Big Four consulting firms have told the media. On June 8, media reports claimed that the company is planning to split its global audit and consulting practices.
Denying the rumors, a company spokesperson informed Reuters that “as stated previously, we remain committed to our current business model.” The news about Deloitte restructuring plans was first reported by The Wall Street Journal and comes close on the heels of Ernst & Young admitting that they are evaluating options to improve their audit quality. EY told Accounting Today that they “routinely evaluate strategic options that may further strengthen EY businesses over the long-term. Any significant changes would only happen in consultation with regulators and after votes by EY partners. We are in the early stages of this evaluation, and no decisions have been made.”
The Big Four firms consisting of Deloitte, Ernest & Young, PricewaterhouseCoopers, and KPMG have repeatedly faced scrutiny as regulators believe their advisory service offerings might impact their ability to conduct fair audits. Deloitte restructuring plans could be a way out to pacify antsy stakeholders who are asking for more options and greater independence in markets. Deloitte audit and consulting is already under the scanner in two countries.
Deloitte media reports state that being under the regulatory scanner for conflicts of interest could be one of the key drivers behind a restructuring plan for the audit business.
Regulatory Bodies and the Big Four
In March, The Wall Street Journal reported that Deloitte accounting firm, along with other big accounting firms, are being probed by regulators over conflicts of interest as they offer both consulting services and conduct audits. The regulators are concerned that the value-added services offered by them will hinder their ability to carry out fair audits of their clients. The US SEC’s probe is significant as auditors are considered shareholders’ first line of defense against shady accounting practices. In December 2021, during a conference, SEC Enforcement Director Gurbir Grewal said that, “we will have a firm commitment moving forward to continue to target deficient auditing by auditors, auditor independence cases, cases around earnings management.” The SEC’s Miami office sent letters to a number of smaller firms and the Big Four – Deloitte & Touche LLP, Ernst & Young LLP, KPMG LLP, and PricewaterhouseCoopers LLP – seeking information about their clients. In the current investigation, the SEC asked for details about accounting firms’ clients and the services they have provided to them, including consulting and tax advice.
Last month, Britain detailed reforms on company audits after receiving recommendations from three government-sponsored reviews on improving the audit market, which is dominated by the Big Four.
As per Audit Analytics, in all, the Big Four is responsible for auditing approximately 66% of all public companies. In 2019, PwC had paid nearly $8 million to the SEC after the regulatory body discovered that the company helped an audit client design software that was part of its accounting-compliance systems. Last year, PwC adopted a strategy to provide increased support to maintain high audit quality. In the past seven years, Ernst & Young has run into trouble with the SEC twice, paying fines of varying amounts.
According to the WSJ report, Deloitte reached out to investment bankers at Goldman Sachs Group and talks are still at a very early stage, which could be why there has been no confirmation on the matter. Meanwhile, Goldman and JPMorgan Chase & Co are advising Ernst & Young on its possible restructuring.
Deloitte restructuring plans are most likely part of its global strategy to avoid getting into trouble with regulatory bodies as these companies face increased scrutiny over their income sources and supposedly unbiased audits.
