Consulting giants face break-up threat to restore trust after scandals

The federal government is proposing massive changes to how global consulting giants such as PwC and KPMG operate in Australia, after a series of scandals that have undermined trust in a sector that plays a critical role in financial markets.

The shake-up could include forcing the consulting giants to spin off the audit services that are the core of their business, capping partner numbers to make the firms more governable, and limiting lucrative the number of years one firm spends checking a client’s numbers.

KPMG is in turmoil after it last month admitted senior staff accessed confidential information from corporate clients to win business, prompting businesses and governments to consider dumping the firm. The saga has echoes of the PwC tax scandal, in which that firm misused confidential information about planned tax changes it had helped to draft.

Assistant Treasurer and Minister for Financial Services Daniel Mulino, who will unveil the proposed changes in an options paper on Wednesday, took aim at the behaviour of consulting giants and said change was needed.

“In recent years, we have seen behaviour from some large accounting, auditing and consulting firms in Australia that is not fair and honest,” he said in a statement.

“This has undermined trust in the firms themselves and raised broader questions about the resilience of the frameworks meant to uphold market integrity,” he said.

“It is time to return trust and integrity so that the government, taxpayers and other businesses can rely on the services of large accounting, auditing and consulting firms.”

Auditors plays a crucial role in the financial markets by signing off on company accounts that are then relied on by investors, including superannuation giants. But there have long been concerns about risks to their independence when they are part of groups that also sell consulting services to corporate clients. PwC spun off its public service consultancy practice, now known as Scyne, in the wake of its tax leaks scandal.

One of the most radical proposals in the paper is to effectively break up the consulting giants, a step known as “structural separation”, forcing them to only offer either business advice or auditing.

Another is the proposal to ban firms from offering non-audit services to audit clients. This would be a massive blow for KPMG, which has just been appointed Macquarie Group’s auditor and stands to receive non-audit fees that are worth around $16 million a year.

The paper also flags proposed changes that would strengthen the corporate watchdog’s role in policing the sector.

The paper includes the views of noted advocates for a break-up of consulting giants, including former competition watchdog chairs Allan Fels and Graeme Samuel.

Samuel told a 2024 parliamentary inquiry that “major accounting firms should not be conducting both audit and advisory roles for the same client”, and said it “is impossible to erect an effective impenetrable … wall between departments of the same firm”.

The paper also includes less radical proposals including “operational separation” of audit and non-audit services, whereby internal walls would be put in place but firms would be kept intact.

The proposed changes could also see the Australian Securities and Investments Commission (ASIC) given a larger role at the expense of the self-regulatory regime, where professional accounting bodies like Chartered Accountants ANZ have been accused of failing to hold members to account over misbehaviour.

At a recent hearing into the KPMG scandal – triggered by complaints from an anonymous whistleblower alleging senior audit staff illicitly accessed customer information to win new business – Liberal senator Paul Scarr accused the profession’s standards body of doing too little to police members. The accountants’ organisation has 12 investigations underway related to the KPMG scandal, it told the hearing.

The proposals now under consideration by the government were first recommended in 2024 following the PwC tax scandal, where a partner misused confidential government tax plans to help multinational clients dodge the new laws.

That report recommended that private firms be limited to 400 partners – far less than some big consulting firms which currently have up to 1000 partners – and a ban from offering both audit and non-audit work to a client.

“This report marks the end of impunity for a sector which has, for far too long, thrived in darkness,” Senator Deborah O’Neill said of the PwC report in 2024.

The KPMG scandal came to light in March this year when O’Neill gave a Senate speech airing the allegations for the first time.

Some auditing firms have spent decades checking the accuracy of numbers from some of their clients, raising concerns that they could develop cosy relationships and lose their independence. Those auditing contracts can be worth tens of millions a year to the accountancies.

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