Fee tussle comes as Beijing increases scrutiny of western accounting and consulting firms
EY’s Chinese business has been refusing to pay fees owed to the Big Four firm’s global headquarters for more than a year in a dispute over IT services that it says cannot be fully used in China, according to people familiar with the matter.
The tussle is playing out just as stringent new laws from Beijing require that more data considered of importance to national security be kept inside the country, prompting some western companies to examine the option of hiving off their Chinese IT operations.
Expanding in China has long been a priority for global accounting and consulting firms, but in recent months authorities have stepped up scrutiny of the industry. In May, regulators told companies that they needed to check their auditors’ ability “to safeguard information security” and “strengthen controls of sensitive information”.
“Greater China is able to use less of the tech stack than expected, given that the regulatory environment has changed,” said one person familiar with the negotiations.
Outstanding fees owed by the Chinese business have been mounting for more than a year, according to two people familiar with the dispute.
The dispute highlights the sometimes fraught relationship between EY’s global bosses and its semi-independent member firms around the world.
Unlike a typical multinational company, EY is a network of locally owned partnerships, linked through a global entity that manages the brand and shared services such as IT and quality control.
Member firms pay a so-called assessment each year to be part of EY’s global network, which is calculated as a percentage of their revenue. On top of that are fees for centrally provided services including IT, which last year accounted for $2.7bn, or more than half the global entity’s revenue.
In a statement to the Financial Times, EY said that the greater China business “is a valuable part of the EY network, and a member firm in good standing [that] pays the required assessments in normal course”, without addressing the service fees.
EY’s greater China arm — which also includes Hong Kong, Mongolia and Taiwan — employs 22,000 people, almost 6 per cent of the firm’s worldwide headcount. While EY does not break out its revenues, the Asia-Pacific region accounted for $7.3bn, or 16 per cent, of global revenue in the 2022 financial year.
EY is regarded as the most globally integrated of the Big Four firms, with a central budget that ran to more than $5.3bn in the financial year to June 2022, out of worldwide revenues of $45.4bn, according to the accounts of its main entity.
However, earlier this year, EY’s greater China business decided not to participate in a move by EY’s global leaders to spin off its consulting firm, a plan that was ultimately scuppered by leaders of the US operations.
EY China’s fight for lower fees is not the first time member firms have chafed at the scale of the payments to the global headquarters or questioned their value for money.
Kelly Grier, who led the US business for four years until 2022, left after losing a power struggle with global chief executive Carmine Di Sibio over how much influence the US firm should wield within the network and how much it should pay, the FT reported last year.
Source : Financial Times
