Audit reform must fix regulatory gap, not disrupt the market

• CPA Australia calls for direct, firm-level audit regulation 
• Reforms should be proportionate, entity-neutral and avoid forced structural changes to audit practices
• Stronger ASIC surveillance, transparency and enforcement are needed

CPA Australia has urged the Government to close a gap in audit firm regulation through direct oversight of firms, without imposing unnecessary structural disruption and costs on businesses.

Responding to Treasury’s consultation on the regulation of accounting, auditing and consulting firms, CPA Australia has proposed a practical roadmap centred on firm-level registration, stronger surveillance, proportionate enforcement and improved transparency.

CPA Australia Audit and Assurance Lead Tiffany Tan said the consultation considers a broad range of interventions, but the critical policy question is whether those measures address the specific regulatory gap identified.

“The issue is not that Australia needs to redesign the audit market. The issue is that regulators do not have equivalent direct oversight of all audit firms, particularly partnerships,” Ms Tan said.

“A well-designed firm-level registration regime could bring all audit firms within ASIC’s remit, regardless of their legal structure. It would improve accountability without forcing firms to incorporate, divide their businesses or introduce measures that create widespread disruption.”

CPA Australia recommends an entity-neutral registration framework modelled, in part, on the approach used under the Tax Agent Services Act 2009. The framework would apply consistently to partnerships, companies and other audit practice structures, with conditions focused on systems of quality management, independence, ethics, governance and transparency.

Ms Tan said targeted firm-level regulation would make several more disruptive proposals unnecessary.

“Forced incorporation, partnership limits, structural and operation separation, and mandatory audit firm rotation should not be the starting point. They do not directly solve the regulatory gap and risk imposing substantial transition and compliance costs on firms and their clients,” Ms Tan said.

“The Government can achieve its stated objective by bringing partnerships into the regulatory framework, rather than dictating how a successful audit practice must be structured.”

CPA Australia also cautioned that reforms must take account of Australia’s connection to a global financial system.

“Audit operates within a mature international framework built on globally accepted auditing, ethics and quality management standards. Australia should learn from decades of experience of comparable countries and use that existing infrastructure to deliver a right-sized response,” Ms Tan said.

“Other countries, including New Zealand or Singapore, have successfully regulated audit firms directly while allowing partnerships and other structures to operate. Australia can do the same.”

CPA Australia’s submission does not support mandatory structural separation of audit and non-audit services. Nor does it support importing a UK-style whitelist for non-audit services as a substitute for evidence-based safeguards.

Instead, it recommends formal audit committee pre-approval, continued alignment with APES 110 and enhanced disclosure of audit, non-audit and sustainability assurance fees. It also supports stronger governance and transparency requirements for large audit firms through a comply-or-explain governance code.

Ms Tan said the full force of the reform would be experienced across the market, including by large and small businesses.

“The impact of regulation is not confined to audit firms. It ultimately affects audit clients, investors and the broader economy,” Ms Tan said.

“Proportionality and thoughtful implementation are essential. Measures that increase compliance costs, reduce specialist capability or discourage firms from participating in audit may weaken competition and make assurance services less accessible, particularly for smaller entities.”

CPA Australia supports further improvements to ASIC’s surveillance and enforcement capabilities, including:

• a mandatory minimum inspection frequency for audit firms;
• risk-based and rotational selection of audit files;
• graded and comparable inspection reporting;
• a formal opportunity for firms to respond to material findings before publication;
• reliable ASIC funding and staffing; and
• civil penalties and other proportionate sanctions applying to both firms and individuals.

Ms Tan said licensing must be accompanied by meaningful regulatory capacity.

“A registration regime is only effective if the regulator has the resources to inspect firms, respond to risks, engage with the market and enforce the rules,” Ms Tan said.

“Stronger oversight, fair processes and credible sanctions are the essential elements of a modern audit regulatory framework.”

CPA Australia also supports mandatory disclosure of audit-firm and engagement-partner tenure, and periodic tendering of listed-company audits at least every 10 years without automatically requiring a change of auditor.

“Regular tendering and better transparency can strengthen contestability while retaining audit continuity and valuable institutional knowledge,” Ms Tan said.

“The Government has an opportunity to deliver meaningful reform without creating unnecessary upheaval. The roadmap is clear: regulate firms directly, strengthen surveillance and enforcement, improve transparency, and preserve the diverse and sustainable market needed by Australian businesses and capital markets.”

Media contact

Camille Hanton
External Affairs Lead
[email protected]
0431 180 475