EY’s New Global CEO Challenged to Heal Rifts, Fix Audit Quality

Now comes the hard part for EY’s new global CEO and chair.

Janet Truncale broke gender barriers this week as Ernst & Young‘s top partners elected her as the first woman leader of the Big Four network. She will land in a tough job as the firm grapples with audit quality concerns and industry-wide angst over recruiting more accountants and auditors. But at the fore is an EY-specific headache: recovering from a messy failed firm breakup and healing internal rifts.

“That’s got to be foremost the biggest challenge,” said James Cox, a Duke University law professor who specializes in corporate and securities law. The failed split “showed not only deep divisions within the domestic EY but also the global alliance.”

Truncale, who joined EY as an intern and rose from auditor to regional managing partner of the EY Americas Financial Services Organization, will step into the role on July 1. She will succeed Carmine Di Sibio, who will retire next summer.

Di Sibio announced his retirement in June following the collapse of an ambitious plan he championed to break the firm in two. The massive effort, dubbed Operation Everest, would have spun off the firm’s $20 billion consulting arm as a publicly traded company, freeing EY’s army of consultants to pursue big-money tech contracts without running afoul of auditor independence regulations. Like all accounting firms in the US, EY is barred from engaging in consulting partnerships with its audit clients, but the restriction is especially onerous for EY, with its tech-heavy clients including the likes of Amazon.com Inc., Alphabet Inc., and Salesforce Inc.

The deal fell apart in April amid pushback from US leaders and intense negotiations about how to divvy up the firm’s tax partners. Worsening economic conditions, including rising interest rates, also dimmed the prospects of a successful IPO. The firm’s internal strife played out in financial press headlines, revealing deep divisions among top brass.

Truncale will have to move the firm past all of that drama, said Charles Elson, University of Delaware corporate governance professor.

“It’s going to be tough,” Elson said. “It’s going to take more skills than being an auditor.”

EY declined to comment.

Truncale was one of six international senior partners vying for the firm’s top job, with three candidates from Europe and three from North America. Turning to an American to lead the firm made sense given the turmoil in the UK over audit reform, said Prem Sikka, member of the UK parliament and accounting professor emeritus at the University of Essex.

“Really her appointment just reflects the fact that there are too many pressures within the UK firm for them to agree on a leader so they’ve turned to the US,” Sikka said. “The UK is under fire from all sorts of directions—regulators, heavy fines, audit quality—and can’t sort itself out.”

Beyond the Rift

Truncale, like any Big Four leader, will also face challenges with audit quality and growing concerns about the shrinking number of candidates entering accounting. The number of accounting majors earning undergraduate or graduate degrees in 2022 marked the most dramatic single-year decline in three decades, the American Institute of CPAs reported in October.

“The canary in the mine is the number of people taking the CPA exam,” Cox said. “That indicates a profession that is not healthy.”

Truncale coming from the audit trenches at EY is a good signal, however, said Daniel Goelzer, a retired partner at Baker McKenzie LLP and a former acting chairman and member of the Public Company Accounting Oversight Board, the regulator for EY and other audit firms.

A series of blows related to audit quality have hit EY in recent years, including the collapse of its audit client Wirecard and a $100 million penalty for ethics lapses in the US. Earlier this month, the firm revealed that the US audit regulator found a 46% deficiency rate in the audits it inspected in 2022. The PCAOB has not yet published inspection results for individual Big Four firms, but said in July that inspection violations among the largest global network firms rose from 21% in 2021 to 30% in 2022.

“I was glad to see she was someone out of the audit practice in the US because some of the headlines have related to quality,” Goelzer said.

—With assistance from Michael Kapoor.