Ernst & Young

EY
Member firms have different legal structures
(USA, UK, and India: Limited Liability Partnership)
Industry Professional services
Founded 1989 through the merger of Ernst & Whinney and Arthur Young & Co. Oldest component from 1849[1]
Headquarters 1 More London,
London, United Kingdom[1]
Area served
 Worldwide
Key people

Mark Weinberger (Chairman & CEO)[2]

John Ferraro (Global COO)[3]
Services Assurance
Tax Advisory
Consulting
Financial Advisory
Legal
Revenue Increase US$29.6 billion (2016)[4]
Number of employees
 231,000 (2016)[4]
Divisions Assurance, Advisory, Transaction Advisory Services, Tax, Legal
Website www.ey.com

EY (formerly Ernst & Young) is a multinational professional services firm headquartered in London, United Kingdom. EY is one of the largest professional services firm in the world and is one of the "Big Four" accounting firms.

The organization operates as a network of member firms which are separate legal entities in individual countries. It has 231,000 employees in over 700 offices around 150 countries in the world. It provides assurance (including financial audit), tax, consulting and advisory services to companies.[5]

The firm dates back to 1849 with the founding of Harding & Pullein in England. The current firm was formed by a merger of Ernst & Whinney and Arthur Young & Co. in 1989.[6] It was known as Ernst & Young until 2013, when it underwent a rebranding to EY. The acronym "EY" was already an informal name for the firm prior to its official adoption.[7]

In 2016, Fortune magazine ranked EY as 49th of the 100 Best Companies to Work For,[8] and in 2016, EY is the 11th largest privately owned organization in the United States.[9]

History

Early history

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.[10] 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.[10]

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.[10]

As early as 1924, these American firms allied with prominent British firms, Young with Broads Paterson & Co. and Ernst with Whinney Smith & Whinney.[10] In the year 1979, this led to the formation of Anglo-American Ernst & Whinney, creating the fourth largest accountancy firm in the world.[10] 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.[11]

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.[12]

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 Capgemini for $11 billion, largely in stock, creating the new company of Capgemini Ernst & Young, which was later renamed Capgemini.[13]

21st century: Expansion and Future

EY offices in Warsaw, Poland.
Ernst & Young Plaza in Los Angeles, California.

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.[14]

In 2006, EY became the only member of the 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.[15][16]

In 2010, EY acquired Terco, the Brazilian member firm of Grant Thornton.[17]

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.[18]

In 2013, EY changed its brand name from Ernst & Young to EY and tagline to "Building a better working world".[19]

In 2013, the Pope of the Roman Catholic church hired EY to help review Vatican City State's finances and help “verify and consult” the institution’s administration, including the museums, post office and tax-free department store.[20] EY expanded further and acquired all of KPMG Denmark's operations including its 150 partners, 1500 employees and 21 offices. [21]

In 2015, EY opened its first ever global Security Operations Centre at Thiruvananthapuram, Kerala in India and will invest $20 million over 5 years to combat increasing threat of cybercrimes.[22]

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 performed by its member firms.

Each EY member country is organized as part of one of four areas.[23] This is different from other professional services networks, which are more centrally managed.

The four areas are:

Each area has an identical business structure and a management team, which 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 the following four main service lines:[4]

Staff

The rebranded EY logo was unveiled in July 2013 to coincide with the firm changing its trading name from Ernst & Young to EY. The logo was subsequently updated in 2015. [39]

Criticisms

Accounting scandals

Ernst and Young has been in accounting scandals - Bank of Credit and Commerce International (1991), Informix Corporation (1996), Sybase (1997), Cendant (1998), One.Tel (2001), AOL (2002), HealthSouth Corporation (2003), Chiquita Brands International (2004), Lehman Brothers (2010), Sino-Forest Corporation (2011) and Olympus Corporation (2011).

Equitable Life (2004)

In April 2004, Equitable Life, a UK life assurance company, sued EY after nearly collapsing but 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) and Moulin Global Eyecare (2010)

In 2009, EY agreed to pay US$200m out of court to settle a negligence claim by the liquidators of Akai Holdings.[48] It was alleged that EY falsified dozens of documents to cover up the theft of over US$800m by Akai's chairman, James Ting - in some cases documents had been painted over with correcting fluid and then written over by hand.[49] In a separate lawsuit a former EY partner, Cristopher Ho, made a "substantial payment" to Akai creditors in his role as chairman of the company that had bought Akai just before it went bust in 2000.[50] Police raided the Hong Kong office and arrested an EY partner who had been an audit manager on the Akai account from December 1997, although audit documents had been doctored dating back to 1994.[49] The EY partner for the Akai account between 1991 and 1999, David Sun Tak-kei, faced no charges and went on to become co-managing partner for EY China.[49] A few months later EY settled a similar claim of up to HK$300m from the liquidators of Moulin Global Eyecare, an audit client of the Hong Kong affiliate between 2002 and 2004.[48] The liquidators described the Moulin accounts as a "morass of dodginess".[48]

Lehman Brothers (2010)

The Valukas Report issued in 2010[51] 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[52] 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.[53][54][55] In March 2015, EY settled Lehman-related lawsuits in New Jersey and California.[56]

Standard Water (2013)

EY Hong Kong resigned from the audit of Standard Water on when it emerged that although EY Hong Kong had signed off the audit, it had been effectively outsourced to the affiliate in mainland China, which had received 99.98% of the fee.[57] This was important because shareholders have less confidence in mainland auditors and because audit papers on the mainland are subject to state secrecy laws and can be withheld from outside regulators.[57] EY's quality and risk management leader (Greater China) even testified in the Court of First Instance that he was not sure whether there was a formal agreement covering the relationship between the two EY entities.[57] The court case in 2013 came as US regulators were taking an interest in similar cases of accounting fraud in mainland China.[57]

Hellas Telecommunications (2015)

In 2015, Britain's accounting regulator, the Institute of Chartered Accountants in England and Wales (ICAEW), reprimanded Ernst & Young (EY) for its involvement in the Wind Hellas scandal involving mainly TPG, Apax Partners & Nikesh Arora. EY agreed to become administrator of Hellas Telecommunications even though EY had been its accountant for the previous three years. The company was fined £250, 000 ($390, 850) for ethical breaches.[58][59][60][61]

Tax avoidance

In 2014 tax arrangements negotiated by EY for The Walt Disney Company, Koch Industries, Skype, and other multinational corporations became public in the so-called Luxembourg Leaks. The disclosure of these and other tax arrangements led to controversial discussions about tax avoidance.[62][63][64]

Weatherford Audit

In October of 2016, EY settled with the SEC because they were unable to detect financial statement fraud that was committed by the Weatherford tax department.[65] Weatherford misstated their financial statements by manipulating the income tax line item in their financials. EY was Weatherford's independent auditors when the fraud was perpetrated.[66]

Corporate affairs and culture

EY's publicity activity includes its World Entrepreneur Of The Year program, held in over 60 countries.[67]

EY UK also publicizes itself by sponsoring exhibitions of works by famous artists, such as Cézanne, Picasso, Bonnard, Monet, Rodin and Renoir. The most recent of these was Maharaja: the Splendour of India's Royal Courts at the Victoria and Albert Museum.[68]

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.[69]

EY in the UK sponsors the ITEM club.[70]

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.[71]

EY in the UK has set up EY Foundation, a new UK charity set up to support young people and entrepreneurs.[72]

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.[73]

EY has also been an Official Partner to The 2012 and the 2014 Ryder Cups.[74]

EY also has a longstanding relationship with the 2011 Tour de France winner Cadel Evans.[75]

See also

References

  1. 1 2 "Facts & Figures". Ernst Young. 30 June 2011. Retrieved 8 December 2011.
  2. ↑ Mark Weinberger. Ernst & Young. Retrieved 23 April 2013.
  3. ↑ John Ferraro. Ernst & Young. Retrieved 23 April 2013.
  4. 1 2 3 "EY reports record global revenues in 2016 – up by 9%". Retrieved 9 October 2016.
  5. ↑ "EY at a glance". EY. Retrieved 2013-07-03.
  6. ↑ "A timeline of our history". EY. Retrieved 2016-09-24.
  7. ↑ Reddan, Fiona (2013-07-01). "Ernst & Young re-brands". The Irish Times. Retrieved 2013-07-03.
  8. ↑ "Fortune Magazine 2016 100 Best Companies to Work For". Fortune. Retrieved 26 October 2016.
  9. ↑ "America's Largest Private Companies". Forbes. 6 August 2016. Retrieved 6 August 2016.
  10. 1 2 3 4 5 "Ernst & Young – History". Ernst & Young. Retrieved 9 July 2011.
  11. ↑ "Reports Say Arthur Young and Ernst May Merge". The New York Times. May 1989.
  12. ↑ "Accountancy Merger Off". BBC News. 23 February 1998. Retrieved 9 July 2011.
  13. ↑ "Capgemini to Acquire Ernst & Young Consulting Business". The New York Times. March 2000.
  14. ↑ "Ernst & Young Acquires Anderson India". Findarticles. 8 April 2003. Retrieved 9 July 2011.
  15. ↑ "Maintaining a Diverse Culture". Ernst & Young. Retrieved 9 July 2011.
  16. ↑ "Mitchell & Titus Joins Ernst & Young Global as a Member Firm". Prnewswire. Retrieved 9 July 2011.
  17. ↑ Grant Thornton confirms departure of Brazilian member firm Grant Thornton, 3 August 2010
  18. ↑ Bowers, Simon (3 March 2013). "Ernst & Young to pay US regulators $123m over tax avoidance schemes". The Guardian. Retrieved 23 March 2013.
  19. ↑ EY is committed to doing its part in building a better working world.
  20. ↑ Rayman, Noah (19 November 2013). "Vatican Hires International Consulting Firm to Help Reform Finances". Time (magazine). Retrieved 23 March 2013.
  21. ↑ "Danes take big leap to join growing global rival". The Times. Retrieved 26 February 2015.
  22. ↑ "E&Y's first global security operation centre in Kerala". The Times of India. Retrieved 17 June 2015.
  23. ↑ "Ernst & Young Consolidates Global Structure". Webcpa. Retrieved 9 July 2011.
  24. ↑ "The Best Accounting Firms to Work For". Forbes. Retrieved 27 April 2012.
  25. ↑ "BusinessWeek: The Best Places to Launch a Career". BusinessWeek. Retrieved 9 July 2011.
  26. ↑ "Ernst & Young LLP Named to Fortune's '100 Best Companies to Work For' List for the 12th Year in a Row". Ernst & Young. 21 January 2010. Retrieved 9 July 2011.
  27. ↑ "America's Ideal Employers 2011". Universum.
  28. ↑ "The World's Most Attractive Employers 2010". Universum.
  29. ↑ "100 Best Places to Work For in IT". Computerworld. 26 June 2008. Retrieved 9 July 2011.
  30. ↑ "Where Women Want to Work". The Times. Retrieved 9 July 2011.
  31. ↑ For the seventh straight year, Ernst & Young LLP ranks among the top 10 companies for working mothers.
  32. ↑ Chen, George (16 April 2009). "Ernst & Young China Staff to Take Low-Pay Leave". Reuters.
  33. ↑ Jones, Adam (25 January 2012). "China Headcount to Overtake UK at Top Firms". Financial Times.
  34. ↑ "Stonewall Workplace Equality Index 2013". Stonewall.
  35. ↑ Corporate Equality Index.
  36. ↑ Ernst & Young LLP named to the top 10 of The Diversity Inc Top 50 Companies for Diversity for the fifth-consecutive year.
  37. ↑ Universum Global Undergraduate rankings.
  38. ↑ World's Most Attractive Employers.
  39. ↑ "A new name, a new logo and a new era at EY". EY.
  40. ↑ "Equitable Drops High Court Action". BBC News. 2005. Retrieved 26 August 2006.
  41. ↑ Norris, Floyd (18 December 2009). "Ernst to Pay the S.E.C. $8.5 Million". The New York Times. Retrieved 21 April 2011.
  42. ↑ "Where Were the Auditors?". Shane Ross. 12 January 2009. Retrieved 9 July 2011.
  43. ↑ "The Cost of Anglo-Irish Bank". The Irish Times. 12 August 2010. Retrieved 9 July 2011.
  44. ↑ "Anglo's board and auditors criticised at egm Shareholders Told Kyle Swartzlander Owed Bank a Total of €129M in 2007". The Irish Times. 1 January 2009. Retrieved 9 July 2011.
  45. ↑ "Drumm Resigns as Chief Executive of Anglo Irish". The Irish Times. 12 December 2008. Retrieved 9 July 2011.
  46. ↑ "E&Y Faces Probe on Anglo Irish Bank Audit". Financial Times. 14 September 2011.
  47. ↑ "Ernst & Young Agrees to $125m Sons of Gwalia Settlement". The West Australian 4 September 2009. Retrieved 4 September 2009.
  48. 1 2 3 Rovnick, Naomi (27 January 2010). "Ernst & Young pays up to settle negligence claim". South China Morning Post.
  49. 1 2 3 Rovnick, Naomi; Lo, Clifford (30 September 2009). "Raids, arrest as fraud police probe Akai files". South China Morning Post.
  50. ↑ Duce, John; Tan, Andrea (5 October 2009). "Akai Liquidator to Receive Payment in Settlement With Grande". Bloomberg.
  51. ↑ "Lehman Directors Did Not Breach Duties Examiner Finds". DealBook (blog of The New York Times). 11 March 2010. Retrieved 9 July 2011.
  52. ↑ "Attorney General Cuomo Sues Ernst & Young for Assisting Lehman Brothers in Financial Fraud". New York Attorney General. 21 December 2010.
  53. ↑ "Lehman Cooked Books before Collapse, Report Finds". CBS News. 12 March 2010. Retrieved 9 July 2011.
  54. ↑ Court-Appointed Lehman Examiner Unveils Report. DealBook (blog of The New York Times). 11 March 2010. Retrieved 9 July 2011.
  55. ↑ "Lehman Smoking Gun Leaves E&Y Facing Questions". Accountancy Age. Retrieved 9 July 2011.
  56. ↑ Patrick Fitzgerald (13 March 2015). "Ernst & Young Settles Lehman Suits With New Jersey, California Municipalities". WSJ. Retrieved 6 April 2015.
  57. 1 2 3 4 Yam, Shirley (18 May 2013). "E&Y's outsourced auditing raises eyebrows in court". South China Morning Post.
  58. ↑ "Another Greek tragedy". The Economist. Retrieved 13 July 2015.
  59. ↑ "EY fined for conflict of interest over Hellas". Reuters. Retrieved 13 July 2015.
  60. ↑ "United States Bankruptcy Court Southern District of New York" (PDF). Hellas Telecommunications (Luxembourg) II SCA. Retrieved 13 July 2015.
  61. ↑ "Greek co wants damages from Indian-origin investor and Softbank VC Nikesh Arora". Financial Express. Retrieved 13 July 2015.
  62. ↑ "Luxembourg tax files: how Juncker's duchy accommodated Skype and the Koch empire". The Guardian. 9 December 2014. Retrieved 17 December 2014.
  63. ↑ "Disney and Koch Industries Had Luxembourg Tax Deals, Journalists' Group Says". New York Times,. 10 December 2014. Retrieved 17 December 2014.
  64. ↑ "Koch Industries implicated in Luxembourg leaks". Irish Times. 10 December 2014. Retrieved 17 December 2014.
  65. ↑ Big 4 accounting firms (2016-10-23). "Ernst & Young Settles with SEC over Weatherford Fraud — The Big 4 Accounting Firms". Thebig4accountingfirms.com. Retrieved 2016-11-04.
  66. ↑ "Oil Services Company Paying $140 Million Penalty for Accounting Fraud". SEC.gov. 2016-09-27. Retrieved 2016-11-04.
  67. ↑ EY Entrepreneur Of The Year. Ernst & Young. Retrieved 9 July 2011.
  68. ↑ "Maharaja: The Splendour of India's Royal Courts". Victoria and Albert Museum, London, UK. 20 July 2009. Retrieved 9 July 2011.
  69. ↑ Cyberchase – PBS Kids Official PBS Kids website with corporate sponsorships.
  70. ↑ Ernst & Young Item Club appoints new Chief Economist. Prnewswire.co.uk 16 June 1997. Retrieved 9 July 2011.
  71. ↑ "Hope that National Equality Standard (NES) will turn tide for D&I". The HR Director magazine.
  72. ↑ "EY Thanked At Launch of EY Foundation". Retrieved 14 October 2014.
  73. ↑ "Rio 2016 Unveils Ernst & Young as Tier 2 Sponsor". Aroundtherings.com. Retrieved 8 December 2011.
  74. ↑ "EY announces partnership with The 2012 European Ryder Cup Team and The 2014 Ryder Cup". ey.com. Retrieved 27 August 2012.
  75. ↑ "Ernst & Young renews relationship with Cadel Evans". Retrieved 17 October 2014.
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