Ernst & Young (trading as EY) is a multinationalprofessional services firm headquartered in London, United Kingdom. It was the third largest professional services firm in the world by aggregated revenue in 2012 and is one of the "Big Four" accounting firms.[6][7]
The organization operates as a network of member firms which are separate legal entities in individual countries. It has 175,000 employees and more than 700 offices in over 150 countries. It provides assurance (including financial audit), tax, consulting and advisory services to companies.[8]
The firm dates back to 1849 with the founding of Harding & Pullein in England. The current firm was formed by a merger of American firms Ernst & Whinney (a successor firm of Harding & Pullein) and Arthur Young & Co. in 1989.[9] It was known as Ernst & Young until 2013, when it underwent a rebranding. The acronym "EY" was already an informal name for the firm prior to its official adoption.[10]
History
Early history
EY offices in Warsaw
EY is the result of a series of mergers of ancestor organizations. The oldest originating partnership was founded in 1849 in England as Harding & Pullein.[11] In that year the firm was joined by Frederick Whinney. He was made a partner in 1859 and with his sons in the business it was renamed Whinney Smith & Whinney in 1894.[11]
In 1903, the firm of Ernst & Ernst was established in Cleveland by Alwin C. Ernst and his brother Theodore and in 1906, Arthur Young & Co. was set up by the Scotsman Arthur Young in Chicago.[11]
As early as 1924, these American firms allied with prominent British firms, Young with Broads Paterson & Co. and Ernst with Whinney Smith & Whinney.[11] In the year 1979, this led to the formation of Anglo-American Ernst & Whinney, creating the fourth largest accountancy firm in the world.[11] Also in 1979, the European offices of Arthur Young merged with several large local European firms, which became member firms of Arthur Young International.
Mergers
In 1989, the number four firm Ernst & Whinney merged with the then number five, Arthur Young, on a global basis to create Ernst & Young.[12]
In October 1997, EY announced plans to merge its global practices with KPMG to create the largest professional services organization in the world, coming on the heels of another merger plan announced in September 1997 by Price Waterhouse and Coopers & Lybrand. The merger plans were abandoned in February 1998 due to client opposition, antitrust issues, cost problems and difficulty of merging the two diverse companies and cultures.[13]
EY had built up its consultancy arm heavily during the 1980s and 1990s. The U.S. Securities and Exchange Commission and members of the investment community began to raise concerns about potential conflicts of interest between the consulting and auditing work amongst the Big Five and in May 2000, EY was the first of the firms to formally and fully separate its consulting practices via a sale to the French IT services company Cap Gemini for $11 billion, largely in stock, creating the new company of Cap Gemini Ernst & Young, which was later renamed Capgemini.[14]
Recent history
In 2002, EY took over many of the ex-Arthur Andersen practices around the world, although not those in the UK, China or the Netherlands.[15]
In 2006, EY became the only big four to have two member firms in the United States with the inclusion of Mitchell & Titus, LLP, the largest minority-owned accounting firm in the United States.[16][17]
In 2010, EY acquired Terco, the Brazilian member firm of Grant Thornton.[18]
In 2013, EY agreed to pay federal prosecutors $123 million to settle criminal tax avoidance charges stemming from $2 billion in unpaid taxes from about 200 wealthy individuals advised by four Ernst & Young senior partners between 1999 and 2004.[19]
In 2013, EY changed its brand name from Ernst & Young and tagline to "Building a better working world".[20]
Global structure
EY is the most globally managed of the Big Four firms. EY Global sets global standards and oversees global policy and consistency of service, with client work being performed by its member firms.
Each EY member country is organized as part of one of four areas.[21] This is different from other professional services networks which are more centrally managed.
Each area has an identical business structure and one management team that is led by an Area Managing Partner who is part of the Global Executive board. The aim of this structure is to effectively cater for an increasingly global clientele, who have multinational interests.
Services
EY has four main service lines and share of revenues in 2011:[22]
Tax Services (26%): includes Business Tax Compliance, Human Capital, Customs, Indirect Tax, International Tax Services, Tax Accounting & Risk Advisory Services, Transaction Tax.
Advisory Services (19%): consisting of four subservice lines: Actuarial, IT Risk and Assurance, Risk, and Performance Improvement.
Transaction Advisory Services (TAS) (9%): deals with companies' capital agenda – preserving, optimizing, investing and raising capital.
Name and branding
The firm's name arises from the global merger between Ernst & Whinney and Arthur Young in 1989.[11] The motto of the firm is "Building a better working world".[23] The new brand name of EY made headlines when it was realised that EY was also the name of racy magazine, EY! Magateen,[24] which features scantily clad young men.[25]
Staff
EY was ranked No. 1 in the Forbes Magazine's The Best Accounting Firms to Work For in 2012, claiming that EY treats its employees better than other big firms. It was ranked 57 overall [26]
The firm was ranked No. 1 in BusinessWeek's annual list of Best Places To Launch a Career for 2008.[27]
The firm was ranked No. 44 in the Fortune list of 100 Best Companies to Work For, and the highest among the Big Four, for 2009.[28]
EY was ranked 4th in Universum's America's Ideal Employers list 2011[29] and 3rd in its Global Top Employers list.[30]
The firm was No. 34 in ComputerWorld's 100 Best Places To Work For In IT for 2009.[31]
The firm was also placed among the top 50 places in the Where Women Want to Work awards for 2007.[32]
The firm was named as one of the 10 Best Companies for Working Mothers by Working Mothers magazine in 2012 for 7th straight year.[33]
In April 2009, Reuters reported that EY launched an initiative encouraging its staff in China to take 40 days of low-pay leave between July 2009 and June 2010. Those who participate get 20 percent of regular salary plus benefits of full-time employee. It applies to employees in Hong Kong, Macau and mainland China where the firm employs 8,500 in total.[34]
In early 2012, it was reported that EY has 10,000 staff in mainland China and Hong Kong, which has quadrupled in a decade. It has about 11,200 staff in the UK.[35]
In 2012, the firm was ranked number 1 in the Stonewall Top 100 Workplace Equality Index, a list of Britain's top 100 gay-friendly employers. In 2013, the firm was ranked number 6 in the same Workplace Equality Index.[36]
In the year 2013, EY earned 100% rating on the Human Rights Campaign Corporate Equality Index.[37]
In the year 2013, EY was named one of DiversityInc magazine's Top 50 companies for diversity.[38]
In the year 2013, EY was ranked 4th in Universum Top 100 IDEAL™ Employer.[39]
Criticisms
Equitable Life (2004)
In April 2004, Equitable Life, a UK life assurance company, sued EY after nearly collapsing following a House of Lords judgement that it had to pay guaranteed annuities held by its policyholders. Equitable claimed that EY neglected its duty as auditor and demanded £2.6bn in compensation. Equitable abandoned the case in September 2005. EY described the case as "a scandalous waste of time, money and resources for all concerned."[40]
Bally Total Fitness (2008)
Following allegations by the Securities and Exchange Commission that EY had committed accounting fraud in its work auditing the books of Bally Total Fitness, EY reached two settlements in 2008, including a fine of $8.5million.[41]
Anglo Irish Bank (2009)
In 2009, in the Anglo Irish Bank hidden loans controversy, EY was criticised by politicians[42] and the shareholders of Anglo Irish Bank for failing to detect large loans to Sean FitzPatrick, its Chairman, during its audits. The Irish Government had to subsequently take full ownership of the Bank at a cost of €28 billion.[43][44] The Irish Chartered Accountants Regulatory Board appointed John Purcell to investigate.[45] EY said it “fundamentally disagrees with the decision to initiate a formal disciplinary process" and that "there has been no adverse finding made against EY in respect of the audit of Anglo Irish Bank." [46]
Sons of Gwalia (2009)
In 2009, EY, the former auditors of Sons of Gwalia, agreed to a $125m settlement over their role in the gold miner’s collapse in 2004. Ferrier Hodgson, the company's administrator, had claimed EY was negligent over the accounting of gold and dollar hedging contracts. However, EY said that the proposed settlement was not an admission of any liability.[47]
Akai Holdings (2009)
In 2009, EY reached a legal settlement where they agreed to pay US$200m to the liquidators of Akai Holdings. It was alleged that EY falsified court documents to avoid negligence charges which led to police raiding the Hong Kong office.[48]
Lehman Brothers (2010)
The Valukas Report issued in 2010[49] charged that Lehman Brothers engaged in a practice known as repo 105 and that EY, Lehman's auditor, was aware of it. New York prosecutors announced in 2010[50] that they have sued the firm. EY said that its last audit of Lehman Brothers was for the fiscal year ending 30 November 2007 and that, Lehman’s financial statements were fairly presented in accordance with Generally Accepted Accounting Principles.[51][52][53]
In 2010 EY, in a letter to the firm's key clients, defended its audit work for Lehman Brothers.[54] In June 2012 the Accountancy & Actuarial Discipline Board concluded that no action should be taken against EY or any individuals in connection with the auditing of the Wall Street firm before it collapsed in September 2008.[55]
Sponsorship
EY's publicity activity includes its worldwide Entrepreneur Of The Year program, run in 50 countries.[56]
In addition, EY publicizes itself by sponsoring the educational children's show Cyberchase on PBS Kids under the PBS Kids GO! television brand, in an effort to improve mathematics literacy in children.[58]
EY in the UK has set up the National Equality Standard, an initiative developed for business which sets clear equality, diversity and inclusion (EDI) criteria against which companies are assessed. The National Equality Standard (NES) is currently the only industry recognised national standard for EDI in the UK.[60]
Sports sponsorship
On 8 September 2011, Rio 2016 made the announcement that EY will be an official sponsor of the XXXI Olympic Summer Games to be held in Brazil, as the exclusive provider of professional services – consulting and auditing – for Rio 2016 organizing committee.[61] EY also has a longstanding relationship with the 2011 Tour de France winner Cadel Evans.[62]
US$ 25.8 billion (2013)[4]
