Treasury’s ‘serious start’ not enough to address auditor behaviour

Having been released on 1 July, the Treasury’s options paper on firm regulation remains in the spotlight, as experts weigh in on its effectiveness, implications, and what sort of change it will bring about.

For UNSW professor Gary Monroe, it is impossible for firms to address “bad apples”, as recruitment screening can never pick out bad behaviour.

“You can have all the controls you want [but] if one person does something that they're not supposed to do, it's just about impossible to prevent.”

“[It’s] very difficult to really know what kind of person you're hiring, you know, regardless of what screening mechanisms you put in place.”

In a conversation with Accounting Times, University of Sydney professor Clinton Free called the options paper a serious start, but said the test is whether the government is prepared to follow through, and that hard-edged changes to oversight of incentives and consequences were needed.

”In the age of AI, trust is becoming more important and relevant than ever. In professional services, trust is at the heart of the ‘product’. Clients, regulators and the public are buying judgement, independence and trust,” he said.

Free said that the “smartest people and the slickest pitch decks in the world” are undermined when trust is compromised.

“The recent scandals are showing that poor ethics are not only morally corrosive, but they are also commercially disastrous,” he said.

Stronger ethics, he noted, require stronger policies that set clear boundaries, greater openness to internal challenges, and real consequences for senior staff.

“Ethics has to be built into partner remuneration, promotion and client acceptance. Whistleblowers can not be seen as enemies of the firm.”

With the core issue in the PwC case being the use of privileged government information for commercial advantage, and the alleged use of confidential information and the treatment of the whistleblower in the KPMG matter, Free said that the common thread was an abuse of trust.

“Different facts, same ethical disease: privileged information being seen as a business opportunity rather than a professional obligation.”

He said that the privileged position that the big four hold as significant employers who audit major companies, advise the government, shape regulation, and sell trust means they have an obligation to align their governance and incentives with their public role.

“Recent events suggest they are not yet where they need to be.”