Australia considers breaking up Big Four accounting firms

Key facts

• Australia's government is considering breaking up the Big Four accounting firms: Deloitte, EY, KPMG, and PwC.
• Proposed measures include capping partnership sizes to 400 from 1,000.
• The government is exploring structural separation of audit and consulting arms.
• The proposals follow scandals that have highlighted gaps in Australia's regulatory framework.

The Australian government is contemplating significant reforms for its Big Four accounting firms, including a potential break-up, in response to a series of high-profile scandals. Treasury Department proposals suggest capping partnership sizes to 400, down from the current 1,000, and are considering structural separation of audit and consulting divisions.

Assistant Treasurer Daniel Mulino stated that recent conduct by some large accounting, auditing, and consulting firms has undermined trust and exposed weaknesses in market integrity frameworks. These potential interventions echo recommendations from parliamentary inquiries, notably triggered by the PwC tax leaks scandal in 2023, where confidential government policy information was allegedly shared with clients. KPMG is also facing scrutiny over whistleblower allegations of sharing confidential company information with prospective clients for auditing work.

Currently, Australia's Big Four operate as partnerships, falling outside the direct supervision of the Australian Securities and Investments Commission (ASIC) and instead being regulated by state-based laws. The government is weighing whether ASIC should assume a more prominent regulatory role. Options range from structural separation, forcing firms to split their audit and consulting arms, to operational separation, which would prevent firms from serving the same client with both audit and non-audit services. Consultation on these proposals is open until August 12.