“ … But ultimately, we will always choose Earth. We will always choose each other.”
~ Artemis II astronaut Christina Koch
Michael Pezzullo was sacked in November 2023 after an inquiry found he breached the APS Code of Conduct at least 14 times, including failing to maintain confidentiality regarding dealings with Ministers and staff. He regularly disclosed sensitive, confidential information to lobbyist Scott Briggs, who held no security clearance
Previously unreleased report obtained via freedom of information battle says Pezzullo exceeded ‘boundaries of normal public service practice’
Treasury documents reveal mixed views on audit regulation in PwC aftermath
Treasury documents recently released under FOI laws have revealed fresh details about stakeholder views on audit regulation in the aftermath of the PwC tax leaks scandal.
Treasury consultation documents from mid-2024 indicated that big four firms, professional accounting bodies, small and medium firms (SMEs), regulators, think tanks and academics largely agreed that enforcement and standard setting in the audit sector needed to change.
Following its consultation, Treasury concluded that current regulatory oversight of audit quality in Australia was inadequate and that ASIC’s surveillance and enforcement activities were not seen as a strong deterrent to poor conduct.
It also unearthed regulatory gaps and uncertainties that muddied the regulation of audit work, especially at the firm level.
“There is a regulatory gap in which professional standards, regulations & laws apply only at the individual registered auditor level,” Treasury documents read.
“While the management of audit partnerships make decisions affecting audit quality, relating to independence and audit resourcing, it is difficult (for regulators) to take action against an audit partnership for misconduct, either relating to an individual’s conduct or partnership conduct.”
In 2022, it came to light that PwC’s international tax chief, Peter-John Collins, had breached confidentiality by sharing sensitive government client information on upcoming multinational tax laws, tipping off multinational clients to the new laws.
The scandal rocked the consulting industry and led to tighter regulations, most notably for tax agents under the updated Tax Agent Services Act (TASA) 2009. Since then, ASIC has also declared audit regulation as one of its top enforcement priorities.
Treasury launched its consultation into the regulation of accounting, auditing and consulting firms in direct response to the PwC tax leaks scandal. It revealed uncertainty amongst stakeholders regarding who was responsible for governing different aspects of the audit sector.
“There is ambiguity and uncertainty among stakeholders as to the various roles, responsibilities and remits of organisations within the shared regulatory framework governing audit, including standard setting bodies, professional associations and ASIC,” Treasury noted.
“The professional bodies do not see themselves as a 'front line' defence, or a 'quasi-regulator', but as supplementary to the existing regulatory framework.”
During consultation, professional accounting bodies refuted the assertion that self-regulation via professional bodies may not be fully effective. The bodies added that it would be critical to clarify and strengthen ASIC’s jurisdiction to regulate audit firms, including standards that laid out firmwide responsibilities.
Big four stakeholders argued that the existing regulatory frameworks effectively mitigated audit risks, including the management of conflicts of interest with regard to the provision of audit and non-audit services. In contrast, regulators said the current system’s individually-focused penalties failed to effectively incentivise firm-wide compliance.
They added that there was a need for firm-level regulatory action and supported the potential implementation of registration or licensing regimes.
SMEs raised concerns about any additional regulatory burdens, with some arguing that compliance and quality management standards were costly for mid-tier firms, causing many to be priced out of smaller audits.
All stakeholder groups largely agreed that there was a need for greater transparency, public information and reporting requirements surrounding audits. Big four firms supported minimum public disclosure standards, while regulators and academics called for standardised, searchable digital reporting.
With respect to enforcement and standard setting, the Big Four firms noted that ASIC “could and should be doing more” as a regulator of auditors, while the professional bodies said there was an “urgent need” for the government to clarify the intended roles of government and professional audit regulators.
Regulators and standard setters said that the effectiveness and independence of the professional bodies’ quality review programs could be enhanced by placing oversight with a new regulator, while think tanks argued that policymaking and standard setting should be separate from oversight and enforcement.
Stakeholders were also largely in agreement that whistleblower protections needed to be strengthened and made to apply more consistently across different firm structures.