Local media outlet contends an EY exit from Pakistan on the cards

Global professional services firm Ernst & Young may be pondering an exit from Pakistan according to a recent local news report.

Profit, the business and finance section of Pakistani English-language news daily Pakistan Today, has reported that global Big Four professional services firm Ernst & Young is currently reassessing its relationship with local partner Ford Rhodes Sidat Hyder following a recent internal compliance audit – with a potential, if unlikely, withdrawal from the country apparently on the cards.

In a remarkable report, Profit cites sources familiar with the matter as saying that, effectively, an improving security situation in Karachi may have uncovered lax local standards previously obscured by complicit parties in the firm’s Middle Eastern branch, with the annual compliance checks previously assigned to Pakistani accountants working out of the EY offices in the UAE being newly opened to non-Pakistani global partners.

According to Profit, many of the accountants tasked with the earlier, routine compliance audits had “previously worked at the Pakistan offices of EY and would tip off their former colleagues on the scope of the coming compliance audit, which would allow Ford Rhodes Sidat Hyder to be able to paper over their deficiencies in time.” The media outlet noted that the issues since uncovered remain unknown in nature and severity.

Whatever they were however, they were according to the report’s sources significant enough for EY to be now reconsidering its partnership with its local partner, with discussions ongoing and several options on the table; among those options, EY severing ties with Ford Rhodes Sidat Hyder and pulling out of Pakistan altogether – although most local industry insiders speaking to Profit believe this scenario to be unlikely.

Expectations, rather, are that EY will continue its relationship but demand greater control, although fears remain that the Big Four firm could cast aside Ford Rhodes Sidat Hyder and set up its own independent office.as the local subsidiary of one of its other global offices. According to the paper, rumours of a rift have been swirling in the local accounting industry since at least the beginning of the year.

“Yes, the rumours are rife that EY might be pulling out from Pakistan,” an unnamed employee told Profit. “We have confronted the top management, but the top management has told us that the two partners have only been discussing different matters, including a possible merger of EY Pakistan with EY Global. The top management has assured us that nothing of the sort is happening right away and routine work needs not to be disturbed.”

It what it describes as an “almost unprecedented action” in the history of Pakistan’s Big Four accounting firms, Profit has also reported that at least one if not more partners at the EY have already been fired, and that, according to a separate source at a Big Four competitor, a similar externally-performed compliance audit is now underway at PwC’s local affiliate AF Ferguson & Company.

With partners at all of the local Big Four affiliates reportedly alarmed by the developments, its seems at the core there’s a disconnect between the local standards required compared to those prescribed globally, with these firms forced to provide services clients don’t require and thus won’t pay for – further eroding the bottom line in what is described as already a low-fees market for assurance.

“Local fees here are less than what auditing firms charges in other markets as assurance fees,” another of paper’s industry contacts explained. “It is expensive to maintain Big Four standards – even as compared to other international auditing firms, and when the returns are low then pulling out may be more prudent decision than staying. There’s reputation at stake.” The local Big Four firms are said to have between 1,500 to 2,000 employees each.