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The inquiry into consulting firms has recommended limiting accounting partnerships to 400 partners and prohibiting the supply of both audit and non-audit services to the same client for large firms.
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Consulting inquiry hands down final recommendations
07 November 2024
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The Parliamentary Joint Committee on Corporations and Financial Services Committee has tabled its final report for its inquiry into the audit, assurance and consultancy industry, outlining 16 priority recommendations for immediate action and 40 in total.
Among the priority recommendations made by the inquiry, the committee recommended that the Australian government reduce the allowable size of partnerships for accountants to a maximum of 400 partners, to align with the limits of legal partnerships.
The committee said the 400 partner cap could be established with a suitable transition period of up to 5 years to minimise disruption to the sector.
"A review of progress to this end should be conducted after two years if at that time the entity has not chosen to incorporate," the final report said.
The committee called for multi-disciplinary large accounting firms to be banned from supplying audit and non-audit/consultancy services to the same client and their associated entities in Australia and internationally.
Large multidisciplinary accounting firms should also be required to implement operational separation of their audit practice from their non-audit practice, the committee said in its final report.
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"The principles of operational separation should be materially consistent with those applying in the United Kingdom or other global best practice," it said.
The committee recommended that audit, accounting and consulting partnerships with over 3,000 staff be required to implement the Corporations Act 2001 requirements for governance and accountability, if appropriate, via the adoption of the Australian Securities Exchange Corporate Governance principles.
"This should include the requirement for multidisciplinary partnerships to prepare their own general purpose financial reports, including remuneration disclosures and other obligations which may be applicable to partnerships," it said.
"The government should review the operation of this measure within 3 years, with a view to extending its scope to mid-size partnerships."
The committee also recommended that the Australian government legislate to enhance ASIC's power to take enforcement action against audit firms, not just individuals, including for quality management standards.
It wanted the government to give further powers to ASIC to oversee audits to cover all partners within multidisciplinary firms regardless of which part of the firm they work in, as required in the UK Financial Reporting Council Audit Firm Governance Code.
It also urged ASIC to re-establish a program of random audit inspections and supplement its existing risk-based approach by reviewing audit files where conflicts of interest arise from the big four firms providing other services to their audit clients.
The report noted that such conflicts would no longer occur once operational separation of audits was implemented.
The committee also wants to increase resources devoted to financial report inspections and audit inspections until audit quality significantly improved.
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