4 November 2026 • 3 minute read
The corporate regulator has asked the six largest audit firms to develop action plans to address findings of potential breaches of auditor independence requirements.
ASIC’s latest surveillance found that preparers of financial reports and auditors are still not nailing the fundamentals.
The report has landed at a time when big audit firm KPMG continues to be in the spotlight for its alleged audit misconduct, mishandling of confidential client information, and handling of the whistleblower who aired the allegations.
ASIC has released its findings inReport 842:ASIC’s oversight of financial reporting and audit 2025–26, for which it reviewed 353 financial reports consisting of 311 companies and 42 registrable superannuation entities (RSE).
It conducted financial reporting surveillance of 30 companies and expanded its audit surveillance program to 25 audit files of 19 companies and six RSEs across 12 audit firms.
ASIC issued 15 comment forms to auditors from 11 audit firms, setting out 42 findings from its company audit surveillance where auditors did not challenge management assumptions, obtain sufficient evidence to support their conclusions, and document their compliance with ethical, independence, and quality management requirements.
ASIC requested the six largest audit firms (BDO, Deloitte, Ernst & Young, Grant Thornton, KPMG, and PwC) to undertake self-assessments and develop action plans to address their individual findings, as well as findings and calls to action detailed inReport 817: Building trust: Auditors’ compliance with independence and conflict of interest obligations.
It said it identified potential breaches of auditor independence requirements, inadequate consideration of threats from non-audit services, long associations, client relationships, independence in appearance, and the combined effect of multiple threats.
REP 817 had several findings, including likely breaches of the prescriptive independence requirements, gaps in compliance with mandatory rotation requirements, and evidence of prohibited relationships between auditor and client that are considered inherently non-independent and are explicitly prohibited under the Corporations Act. ASIC’s review showed that five auditors held such relationships with six clients.
The review also showed that many auditors took a narrow approach to complying with the general independence requirements, including a “tick-box” approach to compliance and considering potential threats to independence, limited focus on independence in appearance, inadequate assessment of safeguards, and lack of documentation.
ASIC said it evaluated the adequacy of each audit firm’s self-assessment and the effectiveness of their action plans in responding to REP 817’s findings, calls to action, and specific findings of each firm.
Based on the results of its initial evaluation, ASIC said it asked the audit firms to re-evaluate their self-assessments and action plans to further address the root causes of the findings. It also asked the firms to assess whether these issues existed across other engagements, and strengthen engagement-level independence practices.
Furthermore, ASIC asked the firms to address independence in appearance, and how actions and changes will be monitored on an ongoing basis to assess their continued effectiveness.
“We expect that audit firms treat independence as a core audit quality issue rather than a compliance exercise,” ASIC said in REP 842.
“The implementation of policies, controls, systems, tools and training does not, of itself, demonstrate effectiveness. Actions should result in meaningful improvements in engagement-level behaviours and compliance with independence requirements, including independence in appearance.
“We will continue to monitor the implementation and effectiveness of these action plans and the firms’ independence practices through our engagement and our audit surveillance activities.”
ASIC commissioner Kate O’Rourke has called on preparers of financial reports and auditors to lift their performance, particularly when financial reports depend heavily on judgement.
“Our surveillance found that some report preparers and auditors did not challenge significant judgements, including for revenue recognition, impairment and asset valuations,” O’Rourke said.
“Getting these areas right is essential to providing investors with information they can rely on. Auditors need to be independent, obtain stronger evidence, challenge management assumptions and document their conclusions.
“This year we have attributed audit surveillance findings to large audit firms by name. Greater transparency helps investors, directors and other stakeholders better understand where audit quality concerns arise and strengthens accountability across the profession.”
ASIC said it will monitor the effectiveness of the action plans of the six largest audit firms and continue to focus on “embedding and strengthening” the independence practices.
“Audit firms now need to demonstrate that their action plans are producing meaningful and lasting improvements to independence practices,” O’Rourke said.
Financial reporting and auditor misconduct form key ASIC enforcement priorities in 2026, with ASIC flagging that it is taking stronger action where companies and auditors fail to meet their obligations.
The Department of Finance’s recently released report on the independent review of KPMG Australia found that the accounting firm’s response to the whistleblower issue has beenmisguided, fragmented, and prolonged. It also found that it lacked clear ownership.
Alongside this, the department agreed with KPMG on a further extension of the pause to bid for Australian government work until February 2027, “during which period KPMG will provide Finance with an implementation plan, and the first of its quarterly progress implementation reports”.
This report followed that of consultancy firmPrincipia Advisory, which said the firm exhibited breaches of independence, misuse of confidential information, and alleged whistleblower mistreatment.
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Malavika Santhebennur is a journalist on the accounting titles at Momentum Media, Accountants Daily and Accounting Times. She writes news about the accounting industry, regulatory changes, compliance, and the wider accounting landscape. Prior to this, Malavika wrote across several brands in Momentum Media and covered a range of industries, including mortgages, broking, law, real estate, wealth, space, aviation, and defence.
Before joining Momentum Media in 2019, Malavika wrote for Money Management and Super Review, with a focus on financial services, wealth, and superannuation.
