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Big 4 operate ‘beyond the law’ as ‘pseudo corporations’


Self-regulation of the industry has failed, Professor Brendan Lyon tells senate inquiry, because CA ANZ has ‘little incentive to police its largest firms’.

By Philip King 11 minute read

The Big 4 accounting firms operate “beyond the law” under a preferential scheme that delivers “absolutely no regulation and almost nothing in terms of financial risk” a key witness told the senate inquiry into consulting yesterday.

In damning evidence Brendan Lyon, a former KPMG partner and now professor of practice at the University of Wollongong, said the Big 4 had bastardised the partnership model by operating as “pseudo corporations” that paid no company or payroll tax, did not disclose executive pay or audited financial statements yet effectively “sit in every boardroom and cabinet across Australia”.

Special provisions meant their liability was limited to “the ridiculously small amount” of $10 million when they were turning over $2 billion a year and self-regulation by the professional bodies had failed.

CPA Australia and CA ANZ were meant to hold the Big 4 to professional standards but in practice there was “no policeman on the beat” and “CA ANZ has little incentive to police its largest and most powerful member firms”.

He cited CA ANZ’s claims to be investigating KPMG’s involvement in a NSW transport body and the sharing of confidential Treasury tax information at PwC, the scandal that sparked the senate inquiry.

“I have no basis to do other than except that investigations into both KPMG and PwC did indeed start years ago in secret,” he said.

“But I do assert that even with the secret long-term investigations – which have made no inquiries, interviewed no witnesses, held no hearings and imposed no sanctions – even if these investigations are ongoing as CA ANZ claims, it simply proves that CA ANZ is not fit and proper regulator of the scheme in its current form.

“The current professional scheme expires next year and is subject to revocation of or change by the Professional Services Council.

“It is clear on the evidence that many of the Big 4 firms are not currently fit to enjoy the legal protections granted them under the professional scheme.

“It is clear on the evidence that the Big 4 have enjoyed a compliant regulator in CA ANZ that has allowed a thorough bastardisation of the partnership model.

“It is clear on the evidence that these firms have been able to operate beyond the law, beyond sanction and beyond regulation.  

“The integrity of public and corporate reporting is too important to be left to failed self-regulation. The bastardisation of the partnership model by Big 4 firms to form a risk-free, tax-free and consequence-free business model is not in the public interest. Australia needs fundamental change to ensure that we are well served by an accounting profession that is respectable, reliable and properly regulated.”

CA ANZ said the submission by Professor Brendan Lyon “makes several assertions which are not supported by evidence and CA ANZ stands by its response to the committee”.

“CA ANZ strongly refutes the comments made at the Senate inquiry today about CA ANZ and its disciplinary policies and approach,” it said.

“CA ANZ is committed to pursuing any violations of the by-laws or APES 110 Code of Ethics in accordance with our charter without fear or favour. At the same time, it is vital that all investigations, including our independent disciplinary investigations, are allowed due process.”

CA ANZ said its professional conduct review, begun in the wake of the KPMG exam cheating scandal last year, would offer the chance to “extend our disciplinary framework” to ensure “that ethics and integrity remain the cornerstone of our profession”. 

“CA ANZ shares members’ and the community’s concerns about the impact of unacceptable conduct. None of our members would be enjoying the headlines of recent weeks.”

Professor Lyon said governments spent $1 billion a year on consultancy with the Big 4 every year and when it came to conflicts between profit and principle, a lack of effective oversight was critical.

“These are massive firms, they are thinly capitalised, they've got heavy staff loads on them,” he said. “I guess when they're coming up to matter of a choice between profit and turnover or professional principles, and they know that there is no policeman on the beat, there is no risk that they're going to be struck off, there's no risk that they're going to be investigated, I think that makes it a very quick jump to go from principles are important to profits are fundamental – and that's what we see time and again.”

And he said CA ANZ was conflicted in its regulatory role because it relied on the profession for its revenue.

“There's very little incentive for them [CA ANZ] really to be going after the big, powerful firms that form large portions of their revenue, are much more powerful than they are in terms of their political influence donations, etc,” he said.

“I guess if you're a regulator that relies on them for your purpose, relies on them for your daily bread, and there's no one checking to see whether you're enforcing it, then I'd say that it's a pretty simple decision for them around the vigour with which they enforce the rules.”



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Philip King

Philip King


Philip King is editor of Accountants Daily and SMSF Adviser, the leading sources of news, insight, and educational content for professionals in the accounting and SMSF sectors.

Philip joined the titles in March 2022 and brings extensive experience from a variety of roles at The Australian national broadsheet daily, most recently as motoring editor. His background also takes in spells on diverse consumer and trade magazines.

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