SYDNEY, July 1 - The Australian government on Wednesday published a Treasury options paper that lays out a range of regulatory interventions for the country’s largest accounting firms in response to recent scandals in the sector. The measures under consideration include forcing a split between audit and consulting operations, bringing the firms within the remit of the federal corporate regulator, and cutting partnership size limits from 1,000 partners to 400.
The paper points to recent conduct by Deloitte, EY, KPMG and PwC as exposing gaps in Australia’s existing regulatory framework, and it draws comparisons with regulatory arrangements in Britain and the United States. The proposals aim to address what Treasury describes as failures that have eroded public trust in the profession.
Assistant Treasurer Daniel Mulino stressed the reputational damage and systemic questions raised by those failures. "In recent years, we have seen behaviour from some large accounting, auditing and consulting firms in Australia that is not fair and honest," he said. "This has undermined trust in the firms themselves and raised broader questions about the resilience of the frameworks meant to uphold market integrity."
Some of the policy options in the paper reflect recommendations made by parliamentary inquiries following the 2023 PwC tax leaks scandal, in which confidential government policy information was shared to secure clients. Many of those parliamentary recommendations have not yet been implemented. Separately, KPMG faces allegations from a whistleblower that it shared confidential company information with potential private-sector clients as part of bids for audit engagements.
Responding to the Treasury paper, a Deloitte spokesperson said, "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." EY Oceania chief executive David Larocca said his firm supported many of the options detailed in the paper and added, "We have an important role to play in restoring and maintaining trust in the sector." KPMG and PwC did not immediately respond to emailed requests for comment.
A key legal-structural issue identified by Treasury is that the Big Four operate as partnerships rather than companies. As partnerships, they do not fall under the direct supervision of the Australian Securities and Investments Commission (ASIC), which imposes strict reporting and oversight requirements on companies; instead, the firms are subject to state-based laws. That regulatory distinction is central to the debate over whether greater federal oversight is required.
Mulino told ABC Radio there is a clear question about whether ASIC should have a larger role as the federal regulator. Among the strongest reforms under consideration is structural separation - compelling the firms to divide their audit functions from their consulting activities. An alternative model would require operational separation, barring firms from providing audit and non-audit services to the same client.
The Treasury paper also proposes aligning partnership limits with other professional services sectors by considering a cap closer to 400 partners, down from the current 1,000. That ceiling mirrors limits in parts of the legal profession and would represent a substantial change to the scale and governance of the largest accounting firms.
Consultation on the paper is open through August 12, during which stakeholders can provide feedback on the range of options Treasury has outlined.
Summary
The government’s Treasury has proposed a set of regulatory options for the Big Four accounting firms after misconduct exposed gaps in Australia’s oversight. Proposals include placing partnerships under ASIC supervision, structural or operational separation of audit and consulting businesses, and reducing partner caps from 1,000 to 400. Consultation ends on August 12.
Key points
- The Treasury paper recommends potentially bringing Deloitte, EY, KPMG and PwC under federal corporate regulation and considering structural or operational separation of audit and consulting activities.
- One option under review would reduce the maximum number of partners in a firm from 1,000 to 400, aligning the accounting firms with partner limits seen in other professional services.
- Sectors affected include auditing and accounting services, corporate governance functions across the private sector, and consulting services provided to corporate and government clients.
Risks and uncertainties
- Implementation uncertainty - many recommendations mirror parliamentary inquiry findings that have not yet been put into effect, leaving the timing and scope of any reforms unclear; this could affect audit and consulting markets.
- Regulatory scope - the shift from state-based regulation to federal oversight raises questions about enforcement roles and oversight capacity at ASIC.
- Operational disruption - forced separation or caps on partner numbers could change firm structures and client relationships, with potential ramifications for corporate audit and advisory availability.