An options paper released by the Treasury has opened consultation to “build public trust, support investment and ensure financial markets operate effectively” surrounding the big four and to bring about “higher-quality audits”.
It follows the KPMG scandal in May, in which a senior director was found to have mishandled confidential information while the firm was competing for a Westpac contract, as announced by Senator Deborah O’Neill after being tipped off by acompany whistleblower.
The options paper identifiedkey issuesin the profession,such asaccountability, structural conflicts of interest, internal governance, audit surveillance, disciplinary processes and sanctions, and audit market dynamism.
“In recent years, we have seen behaviour from large accounting, auditing, and consulting firms inAustralia that is not fair and honest,” Assistant Treasurer Daniel Mulino said.”This has undermined trust in the firms themselves and raised broader questions about the resilience of the frameworks meant to uphold market integrity.”
“This behaviour has had real consequences. It has undermined trust in the firms themselves and raised broader questions about the resilience of the frameworks meant to uphold market integrity.”
It noted that the multi-disciplinary nature of large firms can offer benefits; however, it could also pose risks relating to conflict of interest.
“There is strong and compelling evidence in favour of imposing enforceable obligations on audit firmsin relation to firm-level decisions affecting audit quality,” it said.
The paper also questioned the current 1,000-individual cap on the maximum number of partnerships in large accounting firms, which it said may limit the effectiveness of ‘joint and several liability’ as an accountability mechanism.
The audit said a reduction inthis cap willreduce “the risk and impact of governance failures, as smaller partnerships are inherently less complex, and the scale of reputational damage or failure would be less significant to the wider economy”.
“This options paper builds on actions taken by the Government to strengthen promoter penalty laws, enhance the powers of our regulators, and improve government procurement and contracting frameworks to reinforce ethical conduct, and review laws for tax and corporate whistleblowing,” Mulino said.
The most recent whistleblowing reforms were made to the Corporations Act and the Taxation Administration Act almost five yearsago. These acts require the minister to cause a review of these amendments to be undertaken assoon as practicable from 1 July 2024.
Scrutiny of actions by big four firms such as PwC and, more recently, KPMG preceded this submission, with CA ANZ commencing investigations into whistleblower allegations at KPMG in June.
In a statement provided to Accounting Times, a KPMG spokesperson said that it has been actively engaging in the Treasury review process and continues to work with the government and profession as the options paper progresses.
“KPMG continues to support reforms that strengthen governance, transparency, auditor independence, firm-level regulatory oversight and public confidence in the profession,” the spokesperson said.
“The firm has previously advocated for enhanced governance standards, greater regulatory oversight, stronger transparency measures, restrictions on non-audit services and increased accountability mechanisms for audit firms.”
The consultation will close for submissions on 12 August.Editor’s note: This article has been published since publication.
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