As technology is increasingly integrated into corporate accounting processes, companies’ expectations of accounting firms have changed. That is causing Ernst & Young to rethink its strategy.
The Big Four accounting firm, which is about halfway through a two-year plan to invest $1 billion in technology across its four main businesses, is planning to unveil a new strategy focused on heightened technological investment, said Carmine Di Sibio, EY’s global chairman and chief executive.
“A lot of the raw work in corporate tax work is around data and technology, so that warrants an investment in that type of technology,” Mr. Di Sibio said in an interview. “Corporates are saying, ‘That’s not really what I do. It is what the Big Four firms do, so let them invest in the technology, and then it’ll be more efficient for us.’ So that’s what we’ve been doing.”
Companies such as
General Electric
Co.
and electronics company
Nokia
Corp.
are moving in-house tax staff to an outside accounting firm.
Mr. Di Sibio, who took the helm of EY in July, declined to disclose more about the technology strategy. The firm plans a formal announcement in the coming months, he said.
EY already has developed a blockchain platform for authenticating corporate clients’ products, such as wine labels and frozen foods, in an effort to help reduce fraud. The firm also employs artificial intelligence to help clients analyze documents to reduce processing time and increase accuracy.
The firm on Wednesday reported its ninth-straight increase in global revenue, a boost that will give it more firepower to invest in these kinds of technologies.
EY recorded global revenue of $36.4 billion for fiscal 2019, up 4.7% from the previous fiscal year, the firm said. Revenue in the year ended June 30 rose 8% when measured in local-currency terms, the way major accounting firms prefer to measure growth.
The firm’s growth occurred at a slower pace than in the past couple of years. Last year, revenue at EY rose 10.7% in U.S. dollar terms and 7.4% in local-currency terms.
The Big Four—which also include PricewaterhouseCoopers, Deloitte Touche Tohmatsu and KPMG—are international networks of private partnerships. They disclose revenue but not profit. Because companies rely heavily on them for audit and consulting services, finance chiefs tend to pay close attention to their financial health.
The firms, which collectively reached their strongest growth in at least a decade in fiscal 2018, have built out their consulting businesses for years, attaining growth they couldn’t find in their core auditing businesses.
Revenue growth at EY, which is the first of the Big Four accounting firms to release full-year numbers for 2019, has generally been in line with the other Big Four firms over time, said
Michael Shaub,
a Texas A&M University accounting professor. But EY lags behind PwC and Deloitte in terms of total revenue.
PwC reported $41.28 billion in total revenue in 2018. Deloitte reported $43.2 billion in total revenue last year. “EY is trying to make up some ground,” Mr. Shaub said, adding that EY’s fiscal 2019 revenue growth “is not going to close that gap.”
KPMG, the smallest of the Big Four in terms of revenue, reported $28.96 billion in 2018.
Each of the Big Four firms has cited a long-term investment in new technologies as a key factor in driving revenue growth. The firms have also sought to strike a delicate balance of managing audit and advisory businesses under one roof—a practice that has spurred scrutiny from regulators who want to guard against potential conflicts of interest.
EY’s revenue from auditing historically exceeds that of consulting, in contrast with some of its competitors such as Deloitte. But its advisory revenue growth has been stronger than in its other businesses, averaging 12.9% from over an eight-year period ending 2018.
However, EY’s revenue from advisory services saw its smallest growth increase in nine years, at 6.4%, reflecting fewer regulatory-driven projects for banking clients in the latest fiscal year, the company said. Consulting comprises about one-fourth of EY’s total revenue.
A continuation in reduced advisory growth could signal that there are fewer hiring opportunities for accounting students seeking consulting jobs, Mr. Shaub said.
EY’s transaction advisory segment saw the largest growth, at 11.9%, the firm said.
Write to Mark Maurer at [email protected]
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