By: Suzanne Craig, Thomas Cavanagh and Jacqueline Mendoza

Treasury has consulted on a suite of potential reforms aimed at strengthening accountability, governance and oversight across Australia’s accounting, auditing and consulting sectors.

Released on 1 July 2026, the options paper proposes a range of reforms directed principally at the audit sector, including an ASIC licensing regime for audit firms, restrictions on conflicts of interest within multidisciplinary firms, new governance requirements for audit partnerships and a substantially strengthened enforcement framework. The consultation closed on 12 August 2026.

Why is the consultation taking place?

The consultation forms part of the Federal Government’s broader response to concerns regarding governance, accountability and conflicts of interest within large professional services firms. It follows reforms introduced in 2024 in response to the PwC tax leaks scandal, which resulted in expanded powers for the Tax Practitioners Board, enhanced whistleblower protections, increased information-sharing between regulators, strengthened promoter penalty provisions and stricter professional conduct obligations for tax practitioners. While those reforms focused largely on tax-related misconduct, Treasury has indicated that broader questions remain regarding the regulation of accounting, auditing and consulting firms.

The consultation is occurring against a backdrop of increased scrutiny of the audit profession. Treasury notes concerns regarding the regulation of partnership-based firms and ASIC’s observation that its powers over audit partnerships are more limited than its powers over corporations.

How is the sector regulated today?

Australia’s existing audit regulatory framework distinguishes between individual auditors and audit firms. Individuals who undertake company audits must generally be registered with ASIC as Registered Company Auditors (RCAs). Audit services may be provided through Authorised Audit Companies (AACs) or audit partnerships, with many large professional services firms operating through partnership structures. Audit work is also subject to professional, ethical and auditing standards administered by the accounting and auditing profession.

In contrast, consulting services are generally regulated through a combination of general corporate law, professional standards, government procurement requirements, contractual obligations and sector-specific regulatory regimes.

According to the Treasury’s discussion paper, a key issue is that matters affecting audit quality, including resourcing, remuneration, quality control systems and conflict management, are often determined at firm level. However, unlike AACs, audit partnerships are not currently subject to a comprehensive system of firm-level registration and accountability, with regulatory obligations attaching primarily to the individual auditor responsible for an engagement. Consistent with this concern, ASIC Chair Sarah Court recently observed that “we need to consider closing the regulatory gaps in ASIC’s jurisdiction so we can provide meaningful oversight of audit firms and their leadership”.

What is Treasury proposing?

1. ASIC licensing of audit firms

A central proposal is the introduction of a licensing regime for audit firms.

Under Option 1A, reporting entities would only be permitted to engage audit firms holding an ASIC licence. To obtain and maintain a licence, firms would be required to comply with ongoing obligations relating to:

• quality management systems;
• ethical standards;
• auditor independence;
• conflicts management;
• governance arrangements; and
• protection of confidential information.

The proposal would operate alongside the existing RCA regime and would give ASIC a direct supervisory role in relation to audit firms themselves. ASIC would be able to impose licence conditions, seek civil penalties and, in serious cases, suspend or revoke a firm’s licence.

Treasury is also considering directly enforceable professional conduct obligations for auditors and fit and proper person requirements for all partners in audit firms.

2. Addressing conflicts in multidisciplinary firms

The options paper identifies the multidisciplinary model adopted by many professional services firms as a potential source of actual and perceived conflicts of interest.

At one end of the spectrum, Treasury is considering prohibiting audit firms from providing non-audit services to their audit clients. More far-reaching options would require operational separation between audit and consulting businesses, including separate governance, leadership, remuneration and reporting structures. Treasury seeks views on whether full structural separation should be required, such that audit services can only be provided through firms that do not offer consulting or other non-audit services.

The consultation also examines conflicts that may arise where firms provide advice to government on policy development while simultaneously advising private-sector clients regarding those same policies.

3. Governance reforms for audit partnerships

Treasury is considering whether large partnership structures provide sufficient accountability for firms performing an important public-interest function.

The reforms under consideration include:

• mandatory governance requirements;
• boards and independent directors;
• statutory duties for key decision-makers;
• fit and proper person requirements for partners;
• reducing maximum partnership sizes;
• requiring a specified proportion of partners to hold relevant professional registrations; and
• whether audits of reporting entities should ultimately be conducted through regulated corporate structures (AACs) rather than partnerships.

4. Enhanced audit surveillance and stronger penalties

The consultation proposes a substantial expansion of the audit enforcement framework.

Options include increasing the frequency of audit inspections, publishing additional firm-level findings and expanding ASIC’s powers to suspend registrations, require remediation and take earlier enforcement action. Reforms to strengthen the powers of the Companies Auditors Disciplinary Board are the subject of consideration.

Importantly, Treasury proposes introducing civil penalties for breaches of auditor obligations that could apply not only to individual auditors, but also to audit partnerships and audit firms.

In addition, the options paper contemplates a significant increase in maximum penalties, including a model based on the existing promoter penalty regime under which penalties could be linked to turnover or benefits obtained from the contravention.

5. Audit competition and independence

Treasury is considering measures intended to promote market dynamism and address concerns regarding lengthy auditor appointments.

Options include:

• mandatory disclosure of audit firm tenure;
• disclosure of lead auditor tenure;
• disclosure of audit tender history;
• mandatory tendering of audit services every 10 years; and
• mandatory audit firm rotation after 20 years (or an explanation as to why rotation has not occurred).

What next?

While Treasury has not yet indicated which options it intends to pursue, the consultation signals a potential shift away from a framework focused primarily on individual auditor accountability towards one that imposes direct obligations on audit firms themselves.

If implemented, proposals such as audit firm licensing, expanded enforcement powers and reforms affecting multidisciplinary firm structures would constitute some of the most substantial changes to Australia’s audit regulatory framework and could significantly affect the governance, operation and oversight of large professional services firms.

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