Assistant Treasurer Daniel Mulino has announced the government's intention to separate the consulting and audit arms of the Big Four accounting firms, following a Treasury review that found conflicts of interest undermine audit quality. The proposal, revealed on Friday, would require firms such as PwC, Deloitte, EY, and KPMG to structurally separate their audit practices from their consulting businesses, either through divestiture or by creating independent legal entities.
Review findings and government response
The Treasury review, commissioned in 2023 after the PwC tax scandal, identified systemic issues where firms prioritised consulting revenue over audit independence. According to Mulino, the current model creates 'inherent conflicts that cannot be managed by Chinese walls alone.' The government will consult on the proposal until March 2024, with legislation expected to be introduced later that year. The changes would apply to firms auditing more than 30 listed entities, effectively targeting the Big Four.
Industry reaction
The Big Four have expressed concerns about implementation costs and global competitiveness. A PwC spokesperson said the firm is 'committed to high-quality audits' but warned that forced separation could disrupt the market. However, the Australian Shareholders Association welcomed the move, with CEO Rachel Waterhouse stating, 'Investors have long called for this reform to restore trust in audited financial statements.'
Impact on the sector
The proposal is expected to affect thousands of jobs and billions in revenue. Consulting arms of the Big Four generated over $4 billion in 2022-23, compared to $1.5 billion from audits. If implemented, Australia would join the UK and EU in mandating audit firm separation. The government estimates the reforms could cost firms up to $200 million each in transition expenses, but argues the long-term benefits to market integrity outweigh the costs.
