You’ve seen the advertisements: a group of good-looking professionals gathers to discuss pressing global problems over lunch in, say, Rome. All sorts of service providers are keen to show you just how global they are. But as CFOs know too well, the reality hasn’t quite caught up with the advertising as far as their accountants are concerned. They’re still fairly border-bound: so no risotto for you. Instead, if you’re in London, expect a plate of fish and chips with the country-specific accounting advice that you receive.
That could be changing, at least for Ernst & Young. In April, the accounting firm announced plans to consolidate its practices in Europe, the Middle East, India and Africa (EMEIA) into a single entity. Like other major accounting firms, E&Y is a loose partnership of national firms. Although they share the same logo and stationery, legal liability and control remain a country-level affair. E&Y executives say the move to consolidate its 87 practices is a response to the needs of its increasingly global client base. If everything goes according to plan, E&Y will be divided into three divisions — EMEIA, Asia (also announced in April) and the Americas (launched in 2006).
Some observers believe this is a positive development. Besides gaining economies of scale, says David Young, a professor of accounting at French business school Insead, the consolidation should raise auditing standards. “By achieving a more unified business structure, you can expect that there’s going to be greater uniformity, not just in auditing standards but in the quality of audits being performed,” he says.
And the downside? “The only problem I see is actually making it work because of all the complex legal issues involved in how these firms are structured at the country level,” Young says.
As seductive as the overall strategy seems, it’s unclear from the firm’s public statements about the degree to which the units can be consolidated. E&Y’s press release simply states that the EMEIA unit will be run as a single entity by one executive group and “where allowed by laws and regulations, be underscored by formal combinations of practices.”
KPMG and Deloitte have launched similar, albeit smaller, consolidation programmes in the past few years, bringing together a handful of their European practices. But no firm has attempted anything on the same scale as E&Y.
Young believes that the other Big Four firms may now find themselves under pressure to consolidate further — not because of E&Y, but “the juggernaut that is IFRS.” It doesn’t make sense for accounting firms to have a country-focused structure if every company’s books are prepared according to a unified global accounting standard, he says.