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Big 4 partnership caps under consideration by Treasury


Treasury is consulting on key issues affecting public confidence in the big four.

By Nick Wilson 11 minute read

Treasury is consulting on potential partnership caps on big four accounting firms to address governance challenges exposed since the PwC tax leaks scandal went public.  

Its concerns were outlined in a consultation paper released on Friday which also considered competition challenges in auditing and consulting, auditor independence, financial reporting, the regulatory powers of professional bodies, whistleblower protections, and more.

While the Corporations Act puts a general limit of 20 members on partnerships, accounting partnerships can have up to 1,000 members. This is well above other allowed exceptions including among legal practitioners (400 maximum) and architects (100 maximum).

When pushed, the big four have historically defended the size of their firms. In answer to questions on notice put by Senator Barbara Pocock, Deloitte said it believed there was “no merit in establishing a strict number of partners in accounting firms.”

In an interview with Accounting Times, Pocock said she had “yet to hear a convincing piece of evidence” as to why accounting practices are given more leeway than law firms.


Competition has taken centre-stage on the national agenda in recent weeks, most notably in the supermarket inquiry and the government’s recent merger law shakeup.

Now, the government is turning its attention to the big four accounting firms and, in particular, their lion’s share of auditing among big corporates.

The big four audited 37.9 per cent of ASX-listed companies and 96.5 per cent of the top 200 ASX-listed companies (by assets) in 2022, according to the paper.

In the same year, they charged 83.1 per cent of audit fees paid by all ASX-listed companies and received 99.2 per cent of fees paid by the top 200.

While this kind of concentration is nothing new, concerns around the quality of audit services provided by the big four have raised the temperature on the competition challenge.

In its last audit quality report published in October 2022, ASIC said half of Deloitte’s reviewed audits were deficient, meaning its conclusions were unsubstantiated, while KPMG had failed on 48 per cent of its audits.

PwC and EY performed substantially better, though they failed to meet ASIC’s standards on 17 per cent and 15 per cent of key audit areas, respectively.

“Adequate competition in the audit sector supports quality of services provided, puts downward pressure on prices, and improves diversity of choice for consumers and market resilience,” wrote Treasury.

The paper referred to a range of direct regulatory actions taken in other jurisdictions to increase audit sector competition, including joint or ‘managed shared’ audits and audit tenure limitations imposed via mandatory firm rotations.

It also referred to a comparable UK study which found reputation and resources to be main drivers of corporates engaging with the big four over mid-tier firms.

“The inability of mid-tier audit firms to match the experience, reputation and expertise of the four major audit firms may restrict them in acting as a competitive constraint on those already operating within the market,” wrote Treasury.

“Large multi-disciplinary firms have an advantage (due to economies of scale) in providing ongoing investment in retaining and attracting specialised talent in order to support audit quality.”

Treasury asked for submissions on barriers to mid-tier entrants, the drivers leading clients to switch to mid-tier auditors, and whether similar competition dynamics affect non-audit functions including consulting and tax advisory.


The report also considered governance challenges both within partnerships and those implied by the patchwork regulatory frameworks affecting them.

It noted that the offerings and firm sizes of accounting partnerships have increased well beyond their foundations, raising fresh oversight questions.

Unlike corporations, partnerships are regulated under state and territory legislation and are primarily responsible for crafting their own accountability mechanisms.

“It is not clear whether internally set accountability mechanisms are sufficiently robust to adequately safeguard the interests of both partners and non-partner stakeholders, such as audit clients and shareholders of these clients,” wrote Treasury.

“The control and management of partnerships is shared among the partners, who are also its owners. This means that in a traditional partnership structure, the interests of ownership and management are aligned,” it added.

Partnerships lack the divergence of interests between ‘owners’ and ‘managers’ of corporations, meaning the necessity of enterprise-level decision making has resulted in the development of ad hoc governance mechanisms provided for in partnership deeds.

The mechanisms that have developed this way, Treasury said, may imply a “high level of overlap” between the owners, executives, and members of partnership boards. 

Audit independence

Treasury also asked for feedback on whether multi-disciplinary firms are going far enough in separating the provision of audit and non-audit services.

Parliament has heard repeated claims that conflict management relies strongly on self-regulation and that auditors and tax practitioners are given a relatively wide berth to determine when a conflict should be disclosed or avoided.

Treasury compared Australia’s relaxed regulatory approach here to stricter US and UK frameworks and suggested Australia’s approach could allow conflicts to go unreported or unnoticed.

While audit firms tend to have compliance management systems in place to handle independence issues, maintaining independence is primarily the responsibility of individual and lead auditors, wrote Treasury.

It also touched on potential conflict risks posed by the profit-sharing models of multidisciplinary firms.

“Under a model of profit-sharing between audit and non-audit partners, auditors may be incentivised to prioritise client management satisfaction over audit quality,” wrote Treasury.

“The consequences of gaining or losing specific clients are shared with the broader firm, which means profit sharing may create incentives for auditors to avoid contentious issues or adopt a less stringent approach in their audit procedures.”

Consultations will close on 28 June 2024. 

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