Incremental adjustments 'insufficient' to safeguard public trust in audit, academics warn

The government has been urged to mandate the structural separation of audit and consulting functions and completely abolish protected partnership arrangements in a joint submission by four university professors.

The joint submission was produced by Emeritus Professor James Guthrie; Professor of accounting and finance at Macquarie Business School, Dr Johannes Dumay; Honorary senior fellow at the School of Social Services at the University Wollongong, Adam Lucas, and Dr David Moore from Victoria University Business School.

The submission acknowledged the 40 recommendations made by the Parliamentary Joint Committee on Corporations and Financial Services for improving the audit industry and the expansion of ASIC's licensing and enforcement powers over firm partners, but cautioned that "incremental regulatory adjustments were insufficient to safeguard public trust".

"The fundamental problem is structural: the 'governance shield' of the partnership model enables transparency arbitrage and incentivises the commercial exploitation of audit-derived intelligence," the professors said in the submission.

The submission also raised concerns about some of the recent scandals involving audit tenders.

"These cases demonstrate that aggressive commercial growth strategies systematically compromise the big four's independence as putative arbiters of financial integrity, while simultaneously subverting operational transparency, professional ethics, public confidence, and the firms' social licence to operate," the submission stated.

It also noted that while audit generates only 20 per cent of revenue for these firms, it provides legitimacy for other services provided by these firms such as consulting.

Based on 2025 figures, the submission said that Australia's big four generate an estimated $10 billion in total revenue, with approximately $4.5 billion (45 per cent) derived from audit and assurance services. This includes around $2 billion from legislatively regulated external financial audits, representing roughly 20 per cent of total revenue.

This makes structural separation essential, the submission argued.

"The big four's partnership model creates a significant barrier to public accountability, primarily because of its structural design. While these firms operate as gatekeepers of global financial markets, their private partnership status shields them from the disclosure mandates, governance standards, and public scrutiny that publicly traded corporations are subject to," it said.

The academics stated that the partnership model "obscures the remuneration and incentive structures that drive professional behaviour" and also keeps ethical breaches and internal governance opaque.

"In a partnership, [..] internal disciplinary and retaliatory actions are shielded from public view, preventing the systemic oversight necessary to protect the profession's integrity. The current lack of regulatory oversight allows commercial logic to supersede professional logic without risking public reprimand," it stated.

The big four firms, including Deloitte, EY and KPMG said that structurally separating the multidisciplinary firms in Australia could reduce audit quality and diminish access to global subject matter experts.

Other organisations, such as the Governance Institute of Australia have argued that mandating the structural separation of audit and non-audit services should only be used as a last-resort option.

The Australia Institute, however, advocated for the structural separation of audit and non-audit work, as it would address conflicts of interest.

The university professors stated in the submission that the big four firms had "failed to meet their side of the grand bargain in the accounting profession".

"Their private partnership status has allowed them to perform essential public functions without the accountability or disclosure expected of listed corporations," they said.

"The evidence is overwhelming, and the stakes are clear. Without radical reform, the commercial imperatives of the land-and-expand model will continue to override professional ethics and the public interest."