Accounting firms could be split post KPMG audit scandal

KPMG has come under heavy fire over audit scandal. (ABC) Link copiedShareShare articleAccounting firms could be asked to split their lucrative consulting services from their audit functions and individual firm partners could face far greater scrutiny and penalties for legal breaches, under a shake up of the industry being consulted on by the federal government. Assistant Treasurer Daniel Mulino has vowed to address gaps in regulation of audit firms in the wake of the recent PwC tax leaks saga, and the more recent scandal at KPMG. Mr Mulino will on Wednesday release a Treasury options paper on the regulation of accounting, auditing and consulting firms in Australia. "This has undermined trust in the firms themselves and raised broader questions about the resilience of the frameworks meant to uphold market integrity." If you have more information about this story, please contact Nassim Khadem at khadem.nassim@abc.net.au or nassimkhadem@protonmail.com Under allegations raised in parliament, partners at KPMG leaked client information and mishandled a whistleblower who raised the alarm. Since then, a host of partners at the firm, including its CEO Andrew Yates and chairman Martin Sheppard have resigned. And on Tuesday, two men were sacked from Ernst and Young after the prime minister's personal banking information was allegedly breached. The claims against KPMG were first formally made by a whistleblower in May 2024, dismissed by KPMG, then came to light when Labor senator Deborah O'Neill aired them under parliamentary privilege earlier this year. Senator Deborah O'Neill at a KPMG inquiry. (ABC News: Stuart Carnegie) The claims include that the firm's partners misused board papers from Lendlease to pitch for and win external audits of Westpac and Dexus. After decades as a client of KPMG, Lendlease will put its external auditing contract out to tender next year. Lendlease chairman John Gillam told a recent parliamentary hearing into the scandal that the alleged behaviour by KPMG was as "a fundamental breach of trust" and "a grave misuse". The PwC controversy and more recent saga at KPMG has also reignited a global debate about whether accounting firms need to split their lucrative consulting services from their audit functions. Former Telstra chief Ziggy Switkowski has unveiled a review of PwC, but it's unlikely this is the end of an intense probe of its business and the way other consulting firms manage conflicts of interest. As the options paper notes, most firms are making money off their consulting functions but that can create conflicts if they are also the same firm doing company audits. It suggests various options to lift accountability and ensure greater audit independence and ethical standards. This includes a "structural separation" — in other words split — between a firm's auditing function and non-auditing (consulting) arms. It notes how the money incoming from consulting is far higher compared to audits and that creates the potential for conflicts in the audit space. The KPMG scandal has opened questions about whether a firm's audit and consulting arms should be split. (ABC News: Maren Preuss) Audit revenue comprised, on average, 20 per cent of total revenue in the four largest audit firms in Australia in 2025. "For the largest auditing, accounting, and consulting firms, the trend has been for non-audit revenue to consistently outpace audit revenue growth, with non-audit revenue growing from 73 per cent to 82 per cent of total revenue between 2013 and 2018," the paper said. "Risks may arise from internal competition for resources within a multidisciplinary firm. Another option is that audit firms, including partnerships, be licensed by ASIC to provide audit services, with quality management and ethical obligations imposed as ongoing conditions of holding their licence. Audit firms would have to show their independence from audit clients, and have systems and controls to manage client information, including safeguards to protect confidentiality. The government's options paper notes a big problem with big four firm partnerships determining their own governance arrangements. Federal senators have accused senior leaders in Australia's accounting and auditing industry of behaving disgracefully as more revelations emerge about KPMG's whistleblower scandal. "In a traditional partnership structure, accountability is shared amongst partners, who are jointly exposed to the liabilities, assets, and risks of the partnership's operations," it said. The paper suggests imposing new governance requirements on large audit firms or reducing the current partnership limit for accounting firms and requiring a percentage of partners to be registered to deliver regulated services, or ensuring at audit services only are delivered from an authorised audit company. The paper also suggests that "there is scope for ASIC's audit surveillance program to more effectively incentivise audit quality". Th

Accounting firms could be split post KPMG audit scandal

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