Ernst & Young Global Limited

Company information

• Date founded: 1989
• Industry: Business services
• Corporate headquarters: London, United Kingdom
• Type: Private

Overview

Ernst & Young Global Limited (EY) is a privately held company headquartered in London, United Kingdom. Ernst & Young Global Limited is the guiding organization for the network of professional services firms that together make up Ernst & Young, or EY. Ernst & Young firms offer audit, tax, technology, and advisory services around the world. The company was formed in 1989 when two of the world’s largest accounting firms—which had started in the late 1800s and early 1900s—merged. By the mid-2020s, Ernst & Young firms employed more than 390,000 people worldwide.

Ernst & Young Global Limited does not offer services to clients. Ernst & Young member firms provide services to clients, and each firm is an independent organization. Ernst & Young and some other professional services companies maintain this type of complicated structure in part because laws in certain countries and regions require firms that offer legal and accounting services to be owned locally.

Ernst & Young’s structure is made up of executive organizations and regional firms. The executive organizations include Ernst & Young Global Limited and three independent businesses that help oversee member firms in specific parts of the world. The three organizations that operate in specific geographic areas are Ernst & Young Americas LLC, Ernst & Young EMEIA Limited, and Ernst & Young Asia-Pacific Limited. Ernst & Young Americas LLC is a limited liability company in the United States that oversees the operations of Ernst & Young firms in North, Central, and South America and in Israel. Ernst & Young Americas LLC is responsible for overseeing the implementation of Ernst & Young Global Limited policies and procedures, but it does not own any of the firms in the EY network. Ernst & Young EMEIA Limited plays a similar role in overseeing Ernst & Young firms in Europe, the Middle East, India, and Africa (EMEIA). Ernst & Young EMEIA Limited is an English company limited by guarantee. Ernst & Young Asia-Pacific Limited is a Hong Kong company limited by guarantee, and it oversees Ernst & Young firms that operate in the region the company calls the Asia-Pacific. Ernst & Young also has member firms that operate in Japan, but these firms are all separate legal entities that do not have a governing geographical body. Ernst & Young’s regional firms are located around the world. These are the entities that provide services to clients, and they are all independent organizations. Ernst & Young Global Limited and three geographical oversight organizations can add or remove firms from the EY network. The network's firms are broken into twenty-two regions, most of which are grouped into three main geographic areas.

Although Ernst & Young is made up of numerous independent organizations, Ernst & Young Global Limited works to maintain a strong overall identity for Ernst & Young. The leadership of Ernst & Young Global Limited helps to determine Ernst & Young’s overall focus and procedures. It also helped to determine the types of services—such as consulting, audit, and tax services—that member firms provide. EY-Parthenon is the part of the Ernst & Young network that provides consulting services. Consulting is when a business provides advice and insight to another business. EY-Parthenon focuses on providing consulting on corporate growth, digital strategies, corporate restructuring, transaction strategy, customer experience, supply chain and logistics, cybersecurity, risk, and compliance. EY firms also provide audit and assurance services, such as forensic accounting. They also offer tax services, including tax accounting, tax planning, and counseling about specific tax policies. Firms also offer other, similar services, such as human relations resources, mergers and acquisitions consulting, and legal consulting. Ernst & Young firms work with companies in many different industries, but the network is known for specializing in industries such as manufacturing, consumer products, retail, energy, health sciences, real estate, technology, and telecommunications.

History

Ernst & Young Global Limited can trace its history back to the early 1900s when two accounting firms were formed. The first firm was created by Arthur Young, a British accountant. He and a business partner named Charles Stuart operated an accounting firm called Stuart & Young. Young dissolved the partnership, and then created a new partnership with his brother, Stanley Young. They created Arthur Young & Co. in Chicago in 1906. By the 1920s, the firm had grown to have six offices and roughly 150 employees. In 1937, Arthur Young & Co. opened a staff school to help train lower-level staff members, and in the 1950s, the company began to merge with other firms, making it larger and giving it more offices and clients. In the next decade, the company opened firms throughout the world, making it one of the largest accounting firms in the world. The company had 131 offices and roughly 4,000 employees.

The second firm opened in 1903 when accountant Alwin C. Ernst and his brother Theodore opened the Ernst & Ernst in Cleveland, Ohio. Although the firm focused mostly on accounting, Alwin started a special services department in 1908, and it offered business services that were related to modern consulting services. Ernst & Ernst opened offices in Chicago and New York in 1909, and it became an international organization in the 1920s when it partnered with the British accounting firm Whinney, Smith & Whinney. By the 1930s, the company had offices from the East Coast to the West in the United States, and then it opened its first office in Canada. In the 1950s, the company developed its relationship with Whinney, Smith & Whinney. This relationship helped Ernst & Ernst gain clients in Europe, the Middle East, Australia, and Africa. By the early 1960s, Ernst had ninety-five offices throughout the world, making it one of the largest accounting firms in the world. In 1979, Ernst & Ernst officially merged with the British accounting firm to become Ernst & Whinney.

In the 1980s, both Arthur Young and Ernst & Whinney had expanded to become part of the so-called Big Eight (Arthur Andersen, Arthur Young, Coopers & Lybrand, Deloitte, Haskins & Sells, Ernst & Whinney, Peat, Marwick, Mitchell and Co., and Touche Ross) accounting firms in the world. These companies had offices around the world and had significant influence in many places they operated. Ernst & Whinney was the fourth-largest and Arthur Young was the fifth-largest accounting firm in the world. Arthur Young and Ernst & Whinney were rivals competing for the same clients, but their leaders saw an opportunity in merging the companies. In 1989, Ernst & Whinney merged with Arthur Young to create Ernst & Young. The firms inside both organizations had to approve of the merger. Ernst & Whinney’s Canadian firms did not approve the deal. Instead, they left Ernst & Whinney and joined rival KPMG’s network. Other mergers consolidated the accounting field even more, and by the mid-1990s, Ernst & Young was one of the Big Four (Deloitte, PwC, KPMG, and EY) accounting firms.

Ernst & Young continued to grow through more mergers and acquisitions. For example, in 1995, Ernst & Young acquired Kenneth Leventhal & Company. In 1997, Ernst & Young and rival KPMG announced plans to merge. The merger would have created the largest accounting firm in the world. However, the deal stalled after a year of planning. The two companies announced that regulatory challenges prevented them from merging, but some experts believed that the companies could not get their individual firms to agree to the deal. At the time, Ernst & Young was the third-largest and KPMG was the second-largest accounting firm.

Around the same time, Ernst & Young began focusing on consulting work, which had become increasingly lucrative since the 1970s. However, in 2000 the company sold its consulting arm to a French company. Two years later, EY’s accounting business grew when Arthur Anderson—one of the largest accounting companies in the world—went out of business after it was convicted of obstruction of justice for doctoring records and shredding documents for Enron, the failed American energy and commodities company. Ernst & Young agreed to purchase parts of the failed company.

In the 2010s, Ernst & Young rebranded itself EY, and reentered consulting work when it acquired The Parthenon Group LLC (originally formed in 1991) and formed EY-Parthenon. By the 2020s, the company had more than 700 offices in over 150 countries, and it remained one of the Big Four accounting firms in the world. In 2022, the company experienced its largest growth in two decades, with a revenue of $45.4 billion. Additionally, the company invested $3.2 billion in innovation, technology, and audit quality and was on track to achieve net-zero emissions by 2025. Between 2019 and 2023, the company grew revenues of about 40 percent while reducing green house gas emissions by about 40 percent in the same timeframe. Also, the EY Climate Change and Sustainability Services advised over 5,000 clients, furthering the company's committment to protecting the planet.

Impact

Ernst & Young has been one of the largest and best-known professional services firms since it was created in 1989. It is known as one of the Big Four accounting firms, along with KPMG, PricewaterhouseCoopers, and Deloitte. Ernst & Young is a multinational brand that has members around the world. It has worked for many huge corporations and powerful organizations.

Ernst & Young is seen as a powerful influence in the business world because it works with powerful clients. The company has also been implicated in controversy and accused of wrongdoing numerous times in its history. The company was first accused of improper professional conduct by the US Securities and Exchange Commission (SEC) in 1990, only a year after the company was formed. The SEC’s accusations dealt with auditing work Ernst & Whinney completed before the merger, but Ernst & Young was still implicated, and a federal judge barred the company from taking any more auditing work in the New York region for a brief period. The next year, the company again faced allegations of wrongdoing in the United States when the SEC claimed that the firm lacked independence when it audited the Republicbank Corporation and a related company. Many Ernst & Young employees had personal ties to the two companies.

Ernst & Young also faced scandals in other countries. In the early 2020s, Ernst & Young faced scrutiny in Germany for audits it completed on the financial technology company Wirecard. German officials claimed that Ernst & Young’s audits on the company failed to meet appropriate standards for years. Wirecard officials were able to commit fraud for years because Ernst & Young failed to uncover the €1.9 billion discrepancy in the company’s accounts. Eventually, Wirecard failed because of the fraud, and Ernst & Young was blamed in large part because it had been stating the company had healthy finances for years. This caused the company’s auditing sector’s reputation to suffer.

Soon after, the United Kingdom’s Financial Reporting Council fined Ernst & Young £3.5 million because of failures with its audits of the transport company Stagecoach Group. The government later reduced the fine to 2.2 million pounds after the company admitted its shortcomings. Around the same time, a former partner received $10.8 million in damages caused by EY’s misconduct in a Dubai audit, and the US Securities and Exchange Commission fined EY $10 million for violations observed during its engagement with Sealed Air.

To address these issues and repair the company’s reputation, EY announced Project Everest in 2022. The plan aimed to separate consulting and auditing divisions to better serve customers. However, due to internal turmoil, EY canceled the plan in 2023. Allegations of toxic workplace culture, including sexual harassment, bullying, and overworking employees, reached a peak in 2023 after the suicide of an auditor in Sydney, Australia. Investigations into workplace culture resulted in EY’s apology and promise to improve conditions.

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