A New Beginning for Ernst & Young in Asia

by Cesar Bacani, 21 November 2011

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topics:
Accounting and Regulations

tags:
Ernst & Young governance Lehman Brothers Olympus restructuring

It’s been 16 months since Big Four audit firm Ernst & Young brought together its member firms in Asia Pacific under one regional umbrella headed by Louis Pagnutti, Area Managing Partner-Asia Pacific.

How is the new structure working out? “We have had a tremendous start,” says Pagnutti (pictured), who was previously managing partner of Ernst & Young Canada. “For the fiscal year that ended in June, we are up approximately 18% across Asia Pacific in US dollar terms.”

These days, though, top of mind about Ernst & Young has more to do with its Japanese member firm’s engagement with troubled Olympus, whose accounting has come under suspicion after admitting it had been hiding investment losses dating back to the 1990s. Ernst & Young is also being sued in the US for its audit work with now bankrupt Lehman Brothers.

Pagnutti spoke to CFO Innovation’s Cesar Bacani on these and other issues. Excerpts:

When did Ernst & Young change to a regionalised structure?

We now operate in four regional areas, so we have the Americas, we have EMEIA (Europe, Middle East, India and Africa), Asia Pacific and then Japan.

Americas was formed in 2006, EMEIA in 2008, and Asia Pacific was created on July 1, 2010, when the former Far East and Oceania Areas came together – 21-plus countries, and I’ve been here since that time. Prior to that I was the managing partner in Canada for six years.

The previous structure was national-based member firms operating autonomously?

That’s right. Prior to the formation of our Far East Area and our Oceania Area, you might say it was a collection of national practices and certainly we think our competitors still seem to operate in that fashion. We have created this area structure to drive more consistency in terms of how we operate, how we serve our clients and the opportunities we create for our people.

But obviously we have to be respectful of country laws and regulations. So from a legal structure perspective, if you look at Asia Pacific, yes, partners still remain, in terms of their economic interest, partners in their respective local countries. But they are also members of an area-wide structure. The economic interest has to remain in the local structure, but from a governance perspective, we also have to have an area-wide structure.

The objective of the area structure is that we get the right resources to the client at the right time. We’re trying to drive consistent and common policies, practices and methodologies across the area and effectively operate in an integrated fashion . . . The overall objective is to render seamless, consistent, quality service and we are delivering that on a global basis.

How is it working out?

We have had a tremendous start. I am very proud of what we have accomplished just a little over 12 months in. For the fiscal year that ended in June, we are up approximately 18% across Asia Pacific in US dollar terms.

There was a large company here in Hong Kong that needed help on a large project in terms of their finance function. Our competitors brought local teams to the project. We brought a team of integrated resources, from not only Hong Kong, but also other parts of Asia Pacific, including Australia. We needed the local team, but we also wanted to draw on the knowledge and expertise from outside of this market to put together the best team. We won that work.

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