Australia is considering major reforms to the accounting sector, including a possible break-up of the ‘Big Four’ companies and bringing them under the supervision of the corporate regulator after a series of high-profile scandals.
The proposals are set out in an options paper from the Treasury department.
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They include reducing the maximum size of partnerships to 400 from 1,000 and requiring audit practices to rotate on a mandatory basis.
The paper says the recent conduct of Deloitte, EY, KPMG and PricewaterhouseCoopers (PwC) has exposed weaknesses in Australia’s current regulatory framework.
“In recent years, we have seen behaviour from some large accounting, auditing and consulting firms in Australia that is not fair and honest,” Assistant Treasurer Daniel Mulino said in a statement.
“This has undermined trust in the firms themselves and raised broader questions about the resilience of the frameworks meant to uphold market integrity.”
The review follows recommendations from parliamentary inquiries launched after the 2023 PwC tax leaks scandal.
That case involved confidential government policy being used to win clients. Many of the inquiry recommendations have still not been implemented.
KPMG is also facing scrutiny over whistleblower allegations that confidential company information was shared with potential private-sector clients in bids for audit work.
One of the strongest measures under consideration is structural separation. This would require companies to split their audit and consulting operations to reduce conflicts of interest.
Another option is operational separation. Under that model, companies would be prevented from providing both audit and non-audit services to the same client.
The government is also examining whether to cut the current cap of 1,000 partners at accounting practices. That would bring the sector closer to the 400-partner limit that applies to law firms.
It is also reviewing steps to improve diversity in the audit market, including mandatory company rotation every two decades.
The Treasury paper notes that the Big Four audited 96% of Australia’s top 200 companies in 2022.
In Australia, the Big Four are structured as partnerships rather than companies. That means they are not overseen by the Australian Securities and Investments Commission and are instead regulated under state-based laws.
The companies said they would take part in the consultation.
“We welcome the release of the options paper by Treasury and the opportunity to engage constructively on any measures, which strengthen trust in the profession,” a Deloitte spokesperson told Reuters in a statement.
EY Oceania CEO David Larocca said the company supported many of the options in the paper.
“We have an important role to play in restoring and maintaining trust in the sector,” he said in a statement.
PwC described the paper as an “important opportunity to contribute to strengthening and rebuilding trust in our industry”.
“Our firm has undergone significant transformation across the past few years, and that work continues,” a spokesperson said.
