A partnership spanning more than 600 owners. Board directors tasked with winning work. An investigation commissioned and paid for by the firm itself.
Piece by piece, parliamentary hearings into KPMG Australia laid bare the tensions at the heart of the nation's audit industry: firms expected to act as independent guardians of integrity for Australia's largest companies, while simultaneously chasing ever-larger streams of revenue.
The more than 20 hours of testimonies have given fresh ammunition to lawmakers who argue the problems run deeper than any one firm. On Friday, KPMG is once again expected to be discussed in a parliamentary session. Officials from the nation's securities regulator are set to be questioned on their role in the firm's mess of allegedly using confidential client data to win audit work.
At stake in this scandal are proposals championed by senators to split audit from consulting, curb the size of sprawling partnerships and place tougher regulatory scrutiny on the country's largest accounting firms. It comes just three years after PwC was rocked — and ultimately broken up in Australia — by revelations it leaked private government tax information to corporate clients.
"Tragically, this is our second round as a Senate, as a Parliament, on one of the Big Four," said Barbara Pocock, an Australian Greens senator pushing for change at multiple parliamentary hearings this year. Does the current Labor government "have the backbone to really, really chase down the lessons of these two major scandals?"
Potential sector reforms have gained significant interest, she added. Consultations are now closed and firmer proposals for industry change are expected in coming months. The scandal came to light in March when allegations from a whistleblower were first unveiled under parliamentary privilege.
At Friday's session, the chair of the Australian Securities and Investments Commission will testify in Sydney after time constraints during an August hearing prevented Sarah Court from facing questions then. In addition to KPMG, she's expected to be asked about ructions in private credit following the crisis at Bathla Group.
Another of the senators leading the KPMG hearings, Paul Scarr, said it's unlikely new legislation will have enough time to pass before the end of this year.
"There is a real risk that KPMG spends a few months in the naughty corner, makes changes to its governance and leadership, and is then allowed back into the market," said Claudine Cassar, a former Deloitte partner who led Deloitte Consulting in Malta. "The real test is whether the government changes the underlying incentives and regulatory structures, rather than simply deciding that KPMG has served enough time."
Australia's four biggest audit and consulting firms posted combined annual revenue of about A$9.63 billion, according to the organizations' most recently disclosed figures.
KPMG has shown how flimsy firewalls can be within firms, where the imperative for partners to generate revenue creates an incentive to share information to win fresh business. In KPMG's case, that included confidential documents from corporate clients such as large Australian property firms and banks, Lendlease Group and Westpac Banking Corp.
"The new leadership is absolutely focused on addressing integrity issues, strengthening accountability, and rebuilding trust to ensure none of this happens again," said a spokesperson for KPMG. "We recognize there is much more to do, but we are starting to make significant progress in addressing the serious issues confronting the firm."
Reducing the number of partners in one firm is a key parliament-backed proposal. Still, in spite of the heat, the KPMG hearings were littered with former partners attempting to defend their reputations and work.
"I don't see myself as a bad apple, nor do I see the firm to be full of bad apples," Andrew Yates, KPMG's former Australia chief executive and audit partner who resigned in the wake of the scandal, has told lawmakers.
Another former audit partner, Kim Lawry, who's said she shared with staff a photograph of a Lendlease document from her phone, told parliament she didn't know it was confidential.
The fallout from the scandal escalated last week. KPMG Australia said it's
Macquarie Group Ltd. reversed plans to appoint KPMG as its auditor for a lucrative contract worth more than A$75 million a year. The board of the finance giant cited concerns over KPMG's culture to transparently disclose issues. Instead, it will stick with PwC, its current auditor.
Calls for change have also come from corporate Australia. Optus chairman John Arthur told the August hearing that while more regulation may not be the answer to everything, "if it is necessary, then it must be done."
Westpac non-executive director and chair of the board's audit committee, Michael Ullmer, observed at the same occasion in parliament that the audit profession has a fundamental role in Australia's economy running safely.
"It's really important that shareholders and others who deal with corporations have confidence in the financial reports that are issued," he said. "It's critical that the auditors demonstrate trust and integrity because of the extraordinary open access they have."
While progress on reforms may well be slow, it could mark an important initial step. The government hasn't yet brought into law dozens of bipartisan calls in the wake of the PwC tax scandal. Josh Bornstein, who spent three decades in employment and industrial relations law, says the aim should be stages of law changes that move Australia toward a better outcome.
"Even if an initial bout of regulation doesn't achieve all of its desired impacts, we can keep working on subsequent iterations," said Bornstein, director of corporate regulation at The Australia Institute. "It means accepting regulation isn't a perfect science. Sometimes you need to be brave, experiment and then continue to refine."
New powers
Equipping ASIC with greater powers and remediation tools was among
While KPMG has apologized to the whistleblower who made the initial allegations, Australia needs an independent agency to handle what the chartered accountant body said were "longstanding and critical deficiencies in its whistleblower framework."
The former chair of the country's competition regulator, Allan Fels, said the only solution is structural separation of divisions at the firms. That will require the government to pass legislation, because consultancies won't want to do it themselves, he said.
"A breakup in audit and accounting requires so many people to agree and they've got their eyes naturally on their own interest that it's just about impossible to do without an external agent imposing it," said Fels, who is a professor at the University of Melbourne and Monash University.
For her part, Senator Pocock is certain about what must happen after revelations about KPMG in recent months.
"We were so shocked by not only the initial scandal, but then the immense cover-up," she said. "We need some real regulatory and governance reform here. No more window dressing."
