Cap partnerships at 400, create big 4 watchdog: IPA
The Institute of Public Accountants has called for a “more intrusive, bold” regulatory approach for the big four.
Accounting partnerships should be capped at 400 and any partnerships that exceed this should be incorporated and regulated by a new, independent watchdog, the Institute of Public Accountants says.
IPA, the professional body representing smaller accounting firms, called for a crackdown in the wake of the PwC tax leaks scandal to regulate the behaviour of those at the top end of town.
Responding to questions on notice from Senator Deborah O’Neill and Senator Barbara Pocock as part of the inquiry into consulting, it said: “We are aware that other stakeholders and submissions have preferred a more incremental or enhanced version of the current regulatory framework, seeking to minimise disruption or cost.”
“However, given the number of and extent of ‘misbehaviour’ or ethical breaches by [large multi-disciplinary partnerships], then arguably, a more intrusive, bold or even disruptive approach is warranted.”
Regulation 2A.1.01 of the Corporations Regulations allows accounting partnerships to have a maximum of 1,000 partners before needing to be incorporated as a company.
This has led submissions to the inquiry expressing concern over how the current regime allowed the big four to act like “pseudo corporations” while operating outside of the accountability and transparency obligations subjected to companies.
“It is clear on the evidence that these firms have been able to operate beyond the law, beyond sanction and beyond regulation,” Brendan Lyon, University of Wollongong professor and former KPMG partner told the inquiry in July.
Currently, Deloitte has over 1,000 partners with roughly half holding equity, while EY and KPMG both have over 700. PwC has around 650 partners after some 250 exited following its scandal.
Under the IPA’s proposal, accounting partnership caps would be slashed to 400, bringing them in line with caps that apply to law firms.
Firms that provided multiple service offerings and exceeded this cap would be designated as “large multi-disciplinary partnerships” (LMDP) and require incorporation.
Additionally, the IPA said a dedicated watchdog should be created to oversee LMDPs to provide a “specific cop on the beat regulator”.
It opposed increasing ASIC’s jurisdiction, arguing that “funding, capability and enforcement outcomes militates against ASIC being given a further jurisdictional arm and enforcement power over this significant area, which requires dedicated focus, attention and expertise.”
The questions around partnership sizes and regulation form part of a broader series of issues around governance, professional standards, and transparency requirements raised by Treasury in its consultation paper Response to PwC – regulation of accounting, auditing and consulting firms in Australia.
Consultation opened in early May and stakeholder submissions would be due by 28 June.
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