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ernst & young: Revised terms for EY split leave India partners jittery

EY India’s partners are faced with uncertainty and potential delays regarding the consulting-audit separation as they await additional information from headquarters on the revised terms of the split and its potential impact on the guaranteed payouts.

The uncertainty increased after a partner call on Wednesday led by Julie Boland, chair of EY US and Americas region, in which she said the agreement needed to be revised. Boland is slated to take over as global chairman and chief executive of audit business after the split.

This news comes days after EY India doled out large salary hikes (30%-plus) to its partners after a bumper fiscal 2022 in which the firm (including all member entities) touched ₹8,450 crore in revenue, driven largely by its business advisory business.

EY insiders say the India partnership had negotiated a much better deal than other regions. That was largely due to EY India’s nearly 40% year-on-year growth in FY22, one of the fastest in EY universe. Country practices in EU and Americas have been growing in single digits due to economic slowdown.

As part of the consulting-audit separation deal, the Indian advisory partners were to receive 10-12 times their annual earnings in stocks after listing and the audit partners were promised up to four times their annual compensation. The Indian employees who became partners in FY22 were also included in the final deal.

After the handshake between EY HQ and the Indian partnership, Indian partners have been anticipating a fast closure of the deal and expecting big payouts.

The reason for the latest hurdle is supposedly to determine what percentage of the tax business should go to an audit firm. In the US, there aren’t any tax restrictions for auditors doing tax compliance work, and the audit-side wants to keep some of the lucrative tax business. About two-fifths of the firm’s global revenue are attributed to EY US. A source in the know said the EY US team wants to take a relook at not only taxes but also other non-audit services that will be transferred to the audit firm.

Industry experts say that while the new percentages are being worked out, it means the deal contours and value will change after headcount changes.

In FY22, the tax practice brought in $11.3 billion of EY’s global revenue of $45.4 billion. In India, the practice generated ₹1,800-1,850 crore of revenue.

In reply to an ET questionnaire, an EY spokesperson said: “As part of our deliberation and due diligence in connection with the proposed transaction, we are engaging in a dialogue with the largest EY country member firms to determine the final shape of the transaction. This transaction is complex and will be the roadmap for the reshaping of the profession, so it is important we get it right. We remain committed to the strategic rationale that underpins Project Everest and believe that a deal can and should be done.”

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