Senator Deborah O’Neill, a key figure in both the PwC tax scandal and KPMG whistleblower scandal warned that partners in the consulting giants will fight to protect their own interests against the massive changes being proposed to deal with the industry’s cultural problems.
“We’ve seen, in the partnership structure, the flourishing of self-interest over professionalism. We’ve seen a lack of accountability,” she said at a press conference unveiling the proposed changes in an options paper on Wednesday.
“That structure has allowed the flourishing of a culture that people will fight tooth and nail to protect because it is in their financial interest to do so,” she said.
“I think it goes to the culture that needs to be disrupted that we’ve seen manifest itself in the public place through PWC and the KPMG matters.”
Assistant Treasurer Daniel Mulino said the shake-up could include forcing the consulting giants to spin off the audit services that are the core of their business, and potentially more than halving the number of partners allowed to as few as 400.
“One option that we’re looking at is lowering that number to, for example, 400 which would bring it into line with legal professional services. And there are other changes as well, providing ASIC with more powers, more oversight, and stronger penalties,” he said.
Auditors plays a crucial role in the financial markets by signing off on company accounts that are then relied on by investors, including superannuation giants. But there have long been concerns about risks to their independence when they are part of groups that also sell consulting services to corporate clients.
One of the most radical proposals in the paper is to effectively break up the consulting giants, a step known as “structural separation”, forcing them to only offer either business advice or auditing.
Mulino insists the government is keeping an open mind as it consults with the sector on the proposed changes, but O’Neill warned that profound change is needed to “disrupt” a rotten culture.
“The clean out of a few at the top of what appears to be a profoundly unhealthy, unethical culture simply won’t cut it, and that is why these changes that Minister Mulino was announcing today are going to be very, very important in making sure we have the proper cleanliness in our financial markets that are necessary for the confidence of all Australians,” she said.
PwC Australia acknowledged the release of the options paper.
“We are working through the options presented and look forward to engaging constructively in discussions which take our industry forward,” a spokeswoman said.
“Our firm has undergone significant transformation across the past few years, and that work continues.”
The Centre for Public Integrity welcomed the proposals and signalled its intent to advocate for aggressive reform.
“We have long called for, amongst other things, a full-scale structural split between firms’ audit and non-audit functions as the only way to overcome the multitude of significant integrity challenges presented by current arrangements. Recent revelations in respect of KPMG only add to the already overwhelming evidence that this is what is needed,” Dr Catherine Williams, executive director of the centre, said.
“We welcome the release of the options paper by Treasury and the opportunity to engage constructively on any measures which strengthen trust in the profession,” a Deloitte spokesman said.
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Colin Kruger is a senior business reporter for the Sydney Morning Herald and The Age.Connect via email.
