The Australian government is considering a historic breakup of the Big Four accounting firms' consulting and audit divisions, following a series of scandals that have eroded trust in the sector. Assistant Treasurer Daniel Mulino released a Treasury options paper on Wednesday, outlining potential reforms to address structural conflicts of interest.
Scandals Prompt Regulatory Action
The push for reform comes after KPMG was barred from federal contracts until September 30, 2026, following allegations that partners leaked confidential client information and mishandled a whistleblower. The claims, first raised in May 2024 by a whistleblower, were dismissed by KPMG before Labor Senator Deborah O'Neill exposed them under parliamentary privilege. Senior partners, including CEO Andrew Yates and chairman Martin Sheppard, subsequently resigned. Separately, two Ernst & Young staff were sacked and faced court for allegedly breaching Prime Minister Anthony Albanese's personal bank account.
Speaking on Radio National Breakfast, Dr Mulino said the inquiries into PwC and KPMG exposed "behaviour by large firms that simply isn't good enough," where confidential information was misused across different parts of the firm. "The nature of the kinds of activities that have been alleged against PwC and KPMG mean that some of the options we need to look at include separation of functions," he said.
Treasury Options Paper Details
The options paper, released for consultation, proposes several models to eliminate structural conflicts where firms "review their own work." These range from a total ban on providing non-audit services to audit clients, to strict operational ring-fencing with separate CEOs and independent financial reports, or fully mandated structural separation into independent entities.
The paper highlights a cultural imbalance driven by revenue: audit revenue made up only about 20% of total revenue across the Big Four in 2025. Between 2013 and 2018, non-audit consulting revenue grew from 73% to 82% of total firm intakes, threatening to contaminate independent verification. The paper warns that an overarching consulting culture "may be at odds with an auditor's role in challenging management and client perspectives."
Enhanced Penalties and Market Concentration
To prevent firms from treating breaches as a cost of doing business, the government proposes a robust civil penalty regime, with maximum fines for significant global entities reaching 10% of annual turnover, capped at $910 million. The paper also targets severe market concentration, noting that the top four firms audit 96% of Australia's top 200 entities. Options to address this include reducing the partnership limit from 1000 to 400 members, mandating public audit tenders every 10 years, or requiring firms to operate as authorised audit companies under strict directors' duties.
Other interventions include mandatory firm licensing by ASIC and size-based surveillance frequencies to force immediate remediation of flawed corporate books.
Criticism from Crossbench
The paper drew immediate criticism from the Greens. Finance spokesperson Barbara Pocock accused the government of "kicking the can down the road" with further talks. "Back in 2024, Labor issued a consultation paper and nothing came of it. Now we have another paper and the test for Labor is: will it act or will it tinker?" Senator Pocock called for the major partnerships to be subject to the same tax, transparency, and corporate rules as other large businesses, and to halt public contracts to compromised operations. "The Government needs to stop expressing 'deep concern' at corrupt practices of the Big Four while dishing out millions of dollars to them in contracts," she said.
Stakeholders have until August 12, 2026, to provide formal feedback on the proposed regulatory blueprint.
