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The professional body says the recommendations may have major implications for big firms and the business community as a whole.
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CPA warns of 'monumental impact' of consulting inquiry recommendations
08 November 2024
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CPA Australia has cautioned the government to carefully consider the recommendations handed down by the Inquiry into the big four consulting firms and their impact on Australian businesses.
The Parliamentary Joint Committee on Corporations and Financial Services Committee tabled its final report for its inquiry into the audit, assurance and consultancy industry yesterday, outlining 16 priority recommendations for immediate action and 40 in total.
The committee has called for major changes including a cap on the number of partners in accounting partnerships and the operational separation of audit from other services.
Committee chair Deborah O'Neill said the recommendations would "change the shape of the industry and implement evidence-based solutions that have proven successful in other sectors and jurisdictions".
"Such changes will return the focus back to providing objective and independent services and eliminate many of the current inherent conflicts of interest."
The committee has urged the government to reduce the allowable size of partnerships for accountants to a maximum of 400 partners, to align with the limits of legal partnerships. The report recommends implementing the 400 partner cap over a five year period.
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It has also called for multi-disciplinary large accounting firms to be prohibited from supplying both audit and non-audit/consultancy services to the same client and their associated entities in both Australia and internationally.
The report has urged the government to introduce new laws that would require large multi-disciplinary accounting firms to implement operational separation of their audit practice from their non-audit practice.
It also wants to see audit, accounting and consulting partnerships with greater than 3,000 staff adopt the Corporations Act 2001 requirements for governance and accountability.
The committee has also recommended that the Australian government legislate to enhance the ASIC's power to take enforcement action against audit firms, not just individuals, including for quality management standards.
It also wants the government to give greater powers to ASIC to oversee audit 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 has also urged ASIC to e-establish a program of random audit inspections and to supplement its existing risk-based approach by also reviewing audit files where conflicts of interest arise from the big four firms providing other services to their audit clients.
CPA Australia said it is still carefully reviewing the recommendations in the report.
CPA Australia chief of policy, standards and external affairs Elinor Kasapidis said given the complex and sophisticated nature of the professional services industry, the recommendations needed to be considered in terms of system integrity, capital advice, consumer protections and efficient administration to ensure there are no unintended consequences.
"If implemented in their current form, many of the recommendations could potentially have a monumental impact on the professional services industry," said Kasapidis.
“The government should carefully consider the intention of these recommendations and the resulting impact of their implementation on Australian business broadly."
Kasapidis said these recommendations could have a direct impact on not just the big firms, but their clients and business community as a whole.
"As such, the government must ensure that any subsequent regulations do not impact the ability of Australian businesses to compete on the global stage," she said.
Kasapidis also stressed the need the for the government to thoroughly consult with key stakeholders including the professional bodies to ensure the reforms are balanced, targeted and effective.
Senator O'Neill said while the Albanese Government has already implemented significant legislative change in response to the "egregious and shocking" misconduct of PwC there remains more to do.
O'Neill said that the big four accounting and consulting firms have entrenched themselves as the trusted and independent ethical providers of audit and assurance services that purportedly verify the truth and accuracy of financial statements of companies of all sizes.
"Therefore, it is of paramount importance that there is trust in the auditing services provided by these firms, and that their function of providing independent truth is not marred by their own opaqueness," she said.
O'Neill also stressed that the recommendations of the report have been framed by an explicit intention to protect "the viability of smaller entities" as the industry moves to an increasingly robust regulatory framework.
"The committee also recommends increasing the use of small and medium-sized consultancies, particularly those that solely undertake government work, as a means of uplifting these businesses and reducing the potential for conflicts of interest among consultants undertaking government work," she said.
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