Ernst & Young is the world’s fourth largest consultancy firm offering professional services in accounting, taxation, audit, transactions and risk-related services. It also provides legal advisory services in Europe. The firm was created in 1989 by the merger of Cleveland, Ohio-based Ernst & Whinney with New York-based Arthur Young. However, its history dates back to the mid-19th century.
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Roots in England
The roots of Ernst & Young go back to 1849 when British accountant Frederick Whinney started working at Harding & Pullein, a newly-established accounting firm in London. Accountancy was a growing profession at the time and was linked to the industrial revolution. The 1831 Bankruptcy Act and the Companies Act in 1844 led to a growing need for accounting controls. Whinney became a partner in 1859 and brought his sons into the company. In 1894, the company was renamed Whinney, Smith & Whinney.
Roots in the United States
Arthur Young was a Scottish law graduate who developed an interest in banking and investment. He moved to the United States in 1890 to work in accounting and established the firm Arthur Young & Company together with his brother Stanley. Alwin and Theodore Ernst were the sons of a Cleveland, Ohio tailor. They worked as bookkeepers after finishing high school and used this to fund night classes at a business college. They established the Ernst & Ernst accounting company in 1903. The firm expanded quickly after 1913 when the US first levied income taxes.
Roots in Canada
Thomas Clarkson was an Englishman who moved to York (Toronto) in 1832 and worked as a storekeeper and an auctioneer. He founded the Commercial Building & Investment Society and was one of the first directors of the Bank of Toronto. He moved to Milwaukee in 1860 following a trade decline in Canada but returned to Toronto in 1864. He established a trustee and receivership company that developed into the auditing firm Clarkson, Gordon & Company in 1939. This firm expanded into management consulting.
All these companies established a global presence from the 1920s. In 1924, Arthur Young & Company linked with Broad Paterson & Company in England while Ernst & Ernst allied with Whinney, Smith & Whinney. In 1944, Clarkson, Gordon & Company linked with Arthur Young & Company. Each company worked in its own country but represented the alliance. In 1979, Ernst & Ernst merged with Whinney, Smith & Whinney to create Ernst & Whinney in London.
Problems and rebranding
Ernst & Whinney thrived during the 1980s but Arthur Young & Company was affected by the savings and loan scandal in the US. It was sued by the Dallas-based Western Savings Association and in London by the Bank of England over its audit practice. In 1989, Arthur Young & Company merged with Ernst & Whinney to create Ernst & Young, the world’s fourth largest accountancy firm and headquartered in London. In 1998, Ernst & Young abandoned plans first drafted a year earlier to merge with KPMG International to create the world’s largest accounting firm. In June 2000, Ernst & Young sold its IT division, Ernst & Young Technology, to accountancy company Cap Gemini and unveiled a new and integrated global organisation. In July 2013, the company dropped the name Ernst & Young and rebranded itself as “EY.”
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