The Australian government is contemplating sweeping changes to the country’s accounting industry, including potentially breaking up the Big Four firms and bringing them under the oversight of the corporate regulator, in response to a string of damaging scandals that have shaken confidence in the sector.
The proposals, detailed in an options paper released by the Treasury Department on Wednesday, also include reducing the maximum size of partnerships from 1,000 to 400 members and introducing mandatory rotation of audit firms. The paper, according to Reuters, highlighted regulatory gaps exposed by recent misconduct at Deloitte, EY, KPMG, and PwC, drawing comparisons with oversight frameworks in Britain and the United States.
“In recent years, we have seen behavior 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.”
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The potential interventions largely echo recommendations from parliamentary inquiries sparked by the 2023 PwC tax leaks scandal, in which confidential government policy was shared with clients to secure new business. Most of those recommendations have yet to be implemented. KPMG is currently facing its own crisis following whistleblower allegations that it shared confidential company information with prospective private-sector clients to win auditing work.
The Big Four currently operate as partnerships rather than companies, meaning they fall outside the direct supervision of the Australian Securities and Investments Commission (ASIC), which imposes strict reporting requirements on corporate entities. Instead, they are governed by state-based laws.
Mulino indicated that structural separation, forcing firms to split their audit and consulting arms to reduce conflicts of interest, is among the stronger options under consideration. An alternative would involve operational separation, preventing firms from providing both audit and non-audit services to the same client.
The government is also examining whether to lower the current cap of 1,000 partners in accounting firms to align more closely with the 400-partner limit applied to law firms. Other proposals include measures to improve audit market diversity, such as mandatory firm rotation every two decades. The Treasury paper noted that the Big Four audited 96% of Australia’s top 200 companies in 2022.
“There are other changes as well — providing ASIC with more powers, more oversight and stronger penalties,” Mulino told reporters in Canberra.
Industry Response and Calls for Deeper Reform
The Big Four firms responded cautiously to the proposals, emphasizing their willingness to engage while highlighting ongoing internal reforms.
“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 said.
EY Oceania CEO David Larocca said the firm supported many of the options outlined.
“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.
KPMG said it supported reforms that strengthened governance, transparency, auditor independence, firm-level regulatory oversight, and public confidence in the profession.
However, critics argue the proposals do not go far enough. Deborah O’Neill, a senator from the ruling Labor Party who brought whistleblower allegations against KPMG to light in March, said the “unethical” culture exposed by successive scandals needed to be fundamentally disrupted.
She warned the firms would “fight tooth and nail” to preserve their existing structures “because it is in their financial interest to do so.”
Barbara Pocock, a Greens senator who has long advocated for tougher regulation, said the government already had clear recommendations from previous inquiries and should act urgently.
“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.
Brendan Lyon, a former KPMG partner who also blew the whistle on ethical breaches, described the current proposals as “tinkering around the edges.” He argued that the firms needed to be regulated as companies to address the competitive advantages and opportunities for misconduct that arise from operating without sufficient monitoring.
“We are the global epicenter of Big Four misconduct. We’ve seen two Big Four CEOs forced from their roles, disgraced over material misconduct, and the cover-ups that have followed,” he said. “The government admits that the system is broken. It identifies many of the factors, but it doesn’t deal with the key issue, which is the competitive advantage and opportunity for misconduct that’s created when you operate completely unmonitored, unbound and unsanctioned.”
A Pivotal Moment for Australia’s Corporate Oversight
The Treasury paper represents a significant moment for Australia’s corporate governance landscape. The Big Four have long enjoyed a dominant position in the auditing and consulting sectors, but repeated scandals have eroded public trust and prompted calls for structural reform. By considering options such as breaking up the firms or imposing stricter separation between audit and non-audit services, the government is signaling a willingness to challenge the status quo.
The proposals also reflect growing international scrutiny of concentrated professional services markets. Regulators in Britain and the United States have implemented or considered similar measures to address conflicts of interest and improve competition in auditing.
For the Big Four, the coming months will be critical as they engage with the consultation process. Their responses suggest a recognition that change is inevitable, though the extent and nature of that change remain subjects of intense debate.
Australia’s corporate regulator, ASIC, would likely gain significant new responsibilities if the firms were brought under its purview. This could lead to stricter reporting requirements, enhanced oversight, and stronger penalties for misconduct.
However, the outcome of this review is expected to have far-reaching implications for corporate Australia. This is because a more competitive and better-regulated auditing sector might improve the quality of financial reporting and restore confidence in markets. At the same time, overly aggressive reforms risk disrupting established business relationships and increasing costs for companies that rely on the Big Four’s services.