Australia considers tougher oversight and potential break-up of Big Four accounting firms

Source: International Accounting Bulletin Author: Kuldeep Jha Reading time: 3 min

Australia is considering major reforms to the accounting sector, including a possible break-up of the 'Big Four' firms and bringing them under the supervision of the corporate regulator, following a series of high-profile scandals.

The proposals are outlined in an options paper released by the Treasury department. They include reducing the maximum size of partnerships from 1,000 to 400 partners and introducing mandatory rotation of audit practices.

Regulatory Weaknesses Exposed

The paper states that 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."

Background and Context

The review follows recommendations from parliamentary inquiries launched after the 2023 PwC tax leaks scandal, which involved confidential government policy being used to win clients. Many of those 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.

Key Measures Under Consideration

• Structural separation: Requiring companies to split their audit and consulting operations to reduce conflicts of interest.
• Operational separation: Preventing companies from providing both audit and non-audit services to the same client.
• Reducing the partnership cap: Cutting the current limit of 1,000 partners to bring the sector closer to the 400-partner limit that applies to law firms.
• Mandatory company rotation: Requiring audit firms to rotate every two decades to improve diversity in the audit market.

Market Dominance

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. This means they are not overseen by the Australian Securities and Investments Commission and are instead regulated under state-based laws.

Industry Response

The firms have said they will participate in the consultation process.

"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.

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." A spokesperson added: "Our firm has undergone significant transformation across the past few years, and that work continues."

This article was originally created and published by International Accounting Bulletin, a GlobalData owned brand.