KPMG Scandal Spurs Australian Push to Split Audit, Consulting

The partnership model itself is under scrutiny. Partners share liability jointly. That diffuses accountability, the paper notes. Proposed fixes include requiring a percentage of partners to be registered for regulated services, or limiting partnership size so that audit work is delivered only from an authorized audit company.

Civil penalties are on the table. Currently ASIC can only seek criminal penalties or issue infringement notices for auditor breaches. The paper calls that “low by international standards” and suggests introducing civil pecuniary penalties.

Mandatory audit rotation would force companies to tender their audit contracts every 10 years. The top four firms audit 96% of the top 200 entities and 76% of the next 300. Mid-tier firms cite “preferential bias,” resource constraints, and insurance costs as barriers to entry. Rotation could open the door, the paper says.

Lendlease, a KPMG client for decades, will put its external audit out to tender next year. Chairman John Gillam told a parliamentary hearing that the alleged misuse of board papers was a “fundamental breach of trust.”

ASIC chair Sarah Court told a June inquiry that the KPMG case shows an “egregious and serious breach of trust.” She supports extending the regulator's scrutiny powers to consulting firms.

The consultation closes August 12. Any legislation would take months to draft and pass. The immediate effect is uncertainty over the Big Four's business model, partner compensation structures, and the cost of compliance for companies that use them.