Treasury Opens Audit and Consulting Regulation Review as Big Four Face Structural Break-Up Prospect
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What happened
The Australian Treasury has released a consultation paper examining regulatory gaps in the accounting, auditing and consulting sector, with a separation of audit and consulting activities among the options under consideration. Assistant Treasurer Dr Daniel Mulino announced the review today. Chartered Accountants Australia and New Zealand (CA ANZ), which represents more than 140,000 financial professionals, has welcomed the consultation and committed to engaging constructively with Treasury and ASIC on the design of any reforms.
Why it matters
The potential structural separation of audit and advisory functions would represent the most significant change to the Big Four business model in decades. At issue is a structural incentive conflict that regulators have allowed to persist: firms are simultaneously expected to provide independent assurance over financial statements while competing for the same clients’ highly profitable consulting mandates. RMIT University finance professor Angel Zhong characterised the dynamic plainly — the Big Four have effectively been assessing their own work, and Treasury is now considering whether that arrangement remains tenable. The quality of audit assurance is not an abstract governance question for businesses, superannuation funds, and government agencies that rely on these opinions to make decisions. It is the foundation on which capital allocation, financial reporting credibility and regulatory compliance rest.
Zoom out
Australia’s review sits within a broader international recalibration. Regulators across multiple jurisdictions are reassessing whether traditional partnership structures and self-regulatory frameworks remain appropriate for professional services firms that have grown into large, globally interconnected and politically influential institutions. The Australian context has been sharpened by a sequence of high-profile scandals — most notably the PwC tax leaks affair — that demonstrated how consulting relationships and confidential government access can coexist in ways that compromise both. CA ANZ’s statement is notable for its tone: the body acknowledged that its own disciplinary processes, strengthened by member vote in October 2023, are insufficient on their own, and that the regulatory framework around audit must keep pace with what professional bodies can deliver internally. That is an unusual admission from a peak body, and it signals that the profession’s credibility problem is severe enough that sector representatives are actively inviting external oversight rather than resisting it. The ATO notes that the options paper presents a wide range of measures requiring careful consideration, particularly to avoid unintended consequences for smaller firms that operate very differently from the Big Four.
Bottom line
Treasury’s consultation must answer whether the preferred remedy is structural separation, enhanced independent oversight, or a combination of both, because evidence shows current governance arrangements are inadequate. Professor Zhong’s framing is instructive: the success of any reform will be measured not by how firms are reorganised but by whether confidence in audit independence is genuinely restored. Structural change that fails to address the underlying incentive problem would leave the core issue intact.
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