Accounting Firms Face Changes After KPMG Scandal

By Nassim Khadem

Topic: Accounting and Auditing Services

Wednesday, 1 July 2026, at 4:49 am

KPMG is in trouble over an audit scandal.

The government may ask accounting firms to separate their consulting and audit work. This could lead to more scrutiny and penalties for firms that break the law.

Assistant Treasurer Daniel Mulino wants to fix gaps in how audit firms are regulated after recent scandals.

Mr. Mulino will release a paper on regulating accounting and auditing firms in Australia on Wednesday.

The recent scandals have undermined trust in these firms and raised questions about the system.

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If you have more information, please contact Nassim Khadem at khadem.nassim@abc.net.au or nassimkhadem@protonmail.com. You can also contact us if you have any other stories to share.

Partners at KPMG allegedly leaked client information and mishandled a whistleblower.

Several partners, including the CEO and chairman, have resigned from KPMG.

Two men were fired from Ernst and Young after the prime minister's banking information was allegedly leaked.

The claims against KPMG started with a whistleblower in May 2024 but were dismissed by the firm.

Senator Deborah O'Neill talked about the claims in parliament.

The claims include that KPMG partners misused board papers to win audits for Westpac and Dexus.

Lendlease will put its audit contract out to tender next year after decades with KPMG.

Lendlease's chairman said KPMG's alleged behavior was a 'fundamental breach of trust'.

Separating audit and consulting work

The scandals have restarted a global debate about whether accounting firms should separate their consulting and audit work.

A review of PwC has been announced, but it may not be the end of the investigation into the firm.

Most accounting firms make more money from consulting than audits, which can create conflicts of interest.

The government's paper suggests ways to increase accountability and ensure audit independence.

One option is to split a firm's audit and consulting work into separate parts.

The paper notes that consulting income is much higher than audit income, which can create conflicts.

The KPMG scandal has raised questions about whether audit and consulting work should be separated.

On average, audit revenue was 20% of total revenue for the four largest audit firms in Australia in 2025.

Non-audit revenue has grown faster than audit revenue for the largest firms.

There are risks when a firm does both audit and consulting work.

Another option is to require audit firms to be licensed and meet quality and ethical standards.

Audit firms would have to show they are independent from their clients and protect client information.

More scrutiny of firm partners and management

The government's paper notes that big four firm partnerships can decide their own governance.

Federal senators have criticized senior leaders in the accounting industry for their behavior.

The paper suggests imposing new governance requirements on large audit firms.

The paper also suggests that ASIC's audit surveillance program could be improved.

There could be more scrutiny of big four firms.

Greater sanctions for auditor breaches

ASIC is investigating auditors at KPMG.

ASIC's chair said the regulator's powers should extend to consultancy firms.

The government's paper suggests greater disciplinary processes and sanctions for auditors who break the rules.

Current penalties for auditor breaches are low.

The paper suggests introducing civil penalties for contraventions of auditor requirements.

Mandatory audit firm rotation

The paper notes that audit services for large Australian companies are dominated by the top four firms.

It suggests that mid-tier firms face barriers to entering the market.

The paper suggests mandatory audit firm rotation every 10 years.

This could promote audit market diversity and allow firms to exit relationships that may create conflicts of interest.

Consultation on the options paper will close on August 12.

Wednesday, 1 July 2026, at 4:49 am

Wednesday, 1 July 2026, at 5:32 am

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