The Australian government is considering sweeping reforms to the regulation of the country's big four accounting firms, including the possibility of breaking up their audit and consulting businesses and bringing the firms under the oversight of the corporate regulator following a series of high-profile scandals, according to Reuters.
The proposals, released in a Treasury consultation paper on Wednesday, would also reduce the maximum size of accounting partnerships from 1,000 partners to 400 and explore structural reforms aimed at strengthening public trust in the profession.
The review comes after concerns over governance, conflicts of interest and regulatory oversight intensified following the 2023 PwC tax leaks scandal and more recent allegations involving KPMG.
Regulatory gaps exposed
According to the Treasury paper, the conduct of the big four accounting firms, Deloitte, EY, KPMG and PwC, has highlighted weaknesses in Australia's current regulatory framework. The paper also compares Australia's oversight model with regulatory approaches adopted in the United Kingdom and the United States.
Assistant Treasurer Daniel Mulino said,"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,” he added.
The consultation paper broadly reflects recommendations made by parliamentary inquiries launched after the PwC tax leaks scandal, in which confidential government policy information was improperly shared to secure clients. Many of those recommendations have yet to be implemented.
KPMG is also facing scrutiny over whistleblower allegations that confidential company information was shared with prospective private-sector clients during bids for audit work.
Separation options examined
One of the most significant reforms under consideration is structural separation, which would require accounting firms to split their audit and consulting operations into separate businesses.
An alternative proposal would introduce operational separation, preventing firms from providing both audit and non-audit services to the same client in an effort to reduce conflicts of interest.
Mulino also suggested the government was examining whether Australia's corporate regulator, the Australian Securities and Investments Commission (ASIC), should play a larger role in supervising the firms.
"The government's considering whether there's a need for structural separation between audit and consulting businesses. There's a question over whether ASIC needs to step in more as the federal regulator," Mulino told ABC Radio.
At present, Australia's big four firms operate as partnerships rather than companies. As a result, they fall outside ASIC's direct supervision and are instead regulated under state-based partnership laws.
The government is also assessing whether to reduce the current partnership cap from 1,000 partners to 400, bringing accounting firms more closely into line with partnership limits applied in other professional services sectors, including law.
Industry responds
The firms have signalled a willingness to participate in the consultation process while emphasising the importance of restoring confidence in the profession.
"We welcome the release of the options paper by the Treasury and the opportunity to engage constructively on any measures which strengthen trust in the profession," a Deloitte spokesperson said.
EY Oceania Chief Executive David Larocca said the firm supported many of the proposals outlined in the consultation paper.
A PwC spokesperson described the review as an opportunity to help rebuild confidence in the industry.
"The paper was 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."
KPMG did not immediately respond to requests for comment.
Calls for swift action
The proposals have also attracted support from Greens Senator Barbara Pocock, who said previous parliamentary inquiries had already identified the necessary reforms.
"Labor needs to put an end to the Big Four's special treatment and regulate them like other Australian businesses," she said in a statement.
Public consultation on the Treasury's proposals will remain open until 12 August, after which the government will consider the next steps in reshaping the regulation of Australia's accounting sector.