Audit reform in Australia has a genuine opportunity to strengthen the way statutory audit works. Treasury’s options paper, Regulation of accounting, auditing and consulting firms in Australia, released on 1 July 2026, puts a wide range of reforms on the table. These include stronger firm-level obligations, governance changes, greater ASIC oversight, tougher penalties, whistleblower protections and measures aimed at improving competition in the audit market.
Many of these ideas are worth considering. Australia already has a well-established framework designed to protect auditor independence, and stronger accountability and better supervision can build on that foundation. The real question is whether the current safeguards should now be strengthened further as the profession, technology and public expectations continue to change.
For me, the central question is narrower. How do we make auditor independence clearer, stronger and easier for clients, regulators and the public to understand and trust?
Strengthening an independence framework that already exists
Independence has always been central to audit, and Australia already has detailed standards and safeguards designed to protect it. These include restrictions on certain services, approval processes, independence policies, information barriers and other firm-level controls.
Those safeguards matter, and in many cases they work well. The reform discussion is not suggesting that independence is missing. It is asking whether the framework can be strengthened further, particularly where audit and advisory services operate within the same commercial organisation.
In those situations, shared client relationships and wider commercial interests can still create a perception of conflict, even where the formal independence requirements are being properly followed. That does not mean individual auditors are behaving improperly. It simply means the structure can make independence harder for clients and the public to see clearly.
Greater structural separation is therefore one option worth considering. Accounting and advisory firms could continue to provide tax, technology, consulting and broader business services, while a separately owned audit firm provides the statutory assurance function.
Separation does not mean the auditor works in isolation. Modern audits often need tax, valuation, technology, actuarial or other specialist expertise. A firm can employ that expertise directly or bring it in through transparent, arm’s-length arrangements with appropriate independence and confidentiality controls.
The potential benefit is clarity. The roles become easier to explain, and clients, regulators and the public can more readily see who provides advice and who independently provides assurance.
Accountability should reflect how audits are actually delivered
An audit report may carry the signature of an individual registered company auditor, but audit quality is rarely the work of one person. It depends on decisions made across the firm about recruitment, resourcing, training, methodology, technology, workload, remuneration, quality management and culture.
Regulatory accountability should reflect that reality.
For firms auditing Public Interest Entities, there is a strong case for clear firm-level accountability. The regulator should be able to identify the firm responsible for the audit, the people governing that firm and the decision-makers responsible for the systems that affect audit quality.
The aim is not to impose a corporate structure for its own sake. A particular legal structure does not automatically improve audit quality. What matters is clear responsibility at firm level for independence, quality, workforce capability, technology, financial resilience and cooperation with regulators. That responsibility would complement, rather than replace, the professional responsibility of the individual auditor who signs the report.
Good regulation starts with reliable information
Effective supervision also depends on ASIC having access to timely, reliable information about the audit market.
At a basic level, the regulator should be able to see which entities have reporting obligations, when their reports are due, whether they have been lodged, who the current auditor is and which audit firm is responsible. Auditors and reporting entities should also be able to work from accurate and current records.
That may sound like an administrative point, but it has a direct effect on regulation. Where the underlying records are fragmented, incomplete or difficult to use, even a stronger regulatory framework becomes harder to enforce consistently.
A practical reform would therefore be to modernise ASIC’s audit-related registers and supervisory systems so that key information stays current, connected and easy to access. Before we build more complex regulation, we should make sure the basic information needed to administer it is fit for purpose.
High-quality audit must also be economically sustainable
One part of the reform debate deserves more attention than it gets, and that is the cost of delivering a high-quality audit.
Quality takes time and skilled people. It requires senior involvement, specialist capability, sound methodology, technology, training, professional scepticism, quality management, insurance and effective governance. All of that costs money.
Where audit fees are pushed to a level that does not support those inputs, firms have less capacity to invest in the people and systems that quality requires. Add significant new fixed regulatory costs on top, and smaller and independent firms may conclude that statutory audit is no longer commercially sustainable.
That outcome would work against another important objective of reform, which is competition. Australia has already seen a substantial fall in the number of registered company auditors over the past two decades, as we set out in our analysis of Australia’s auditor shortage, while demand for assurance keeps expanding into areas such as sustainability and climate reporting.
Regulation should demand high standards. It should also stay proportionate. We need a market in which capable firms of different sizes can afford to invest in quality and continue to compete.
The need for assurance is not determined by size alone
The same practical thinking should apply to any change in reporting and audit thresholds.
There is a reasonable case for reducing unnecessary compliance costs for smaller entities. However, an organisation’s size does not, by itself, tell us how important independent assurance is.
Banks may rely on audited accounts. So may investors, members of not-for-profit organisations, donors, creditors, business partners and regulators. A smaller organisation can still carry significant obligations to people who depend on reliable financial information.
Rather than relying only on turnover or asset thresholds, Australia could move over time towards a more risk-based approach. The question would become who relies on the information and what the consequences would be if it were materially wrong. Depending on the circumstances, the right level of assurance might be a full audit, a review or another proportionate form of assurance.
That approach would connect the level of regulation more closely to the reason assurance is needed in the first place.
Strengthening the audit framework for the next decade
Treasury’s review matters, and many of the reforms under consideration should strengthen the profession. Better governance, stronger supervision, clearer firm accountability, effective penalties and improved whistleblower protections all have a role to play.
The opportunity is to build on the independence framework we already have. That means asking how independence can be made stronger and clearer, how accountability can better reflect the way audits are actually delivered, how ASIC can gain access to reliable information, and how regulation can support both audit quality and a competitive market.
This is not an argument that the present framework has failed, and it is not a criticism of multidisciplinary firms or the professionals who work within them. Many highly capable auditors deliver quality work under the current model. The reform question is whether some aspects of that model can now be improved to meet changing expectations and strengthen public confidence.
Part of that discussion concerns the role of independent specialist audit firms. If policymakers want stronger independence, genuine competition and more choice in the market, specialist firms can make an important contribution alongside larger multidisciplinary providers.
National Audits Group lodged a submission to Treasury’s consultation, bringing a practical specialist-audit perspective to it. Our focus has been on how independence and accountability can be strengthened while keeping regulation workable, supporting competition and ensuring the audit market remains capable of delivering high-quality assurance. As an audit-only firm, we see these questions from a particular vantage point, and we think that perspective is worth having in the discussion.
Frequently asked questions about audit reform in Australia
What is Treasury’s options paper on accounting, auditing and consulting firms?
It is a consultation paper, Regulation of accounting, auditing and consulting firms in Australia, released on 1 July 2026. Its purpose is to seek stakeholder feedback on options for the government to consider in relation to the regulation of accounting, auditing and consulting firms in Australia. Consultation closed on 12 August 2026.
What reforms does the paper put on the table?
The options include dealing with conflicts of interest in multidisciplinary firms with audit and non-audit functions, partnership reforms including governance requirements for large audit firms and partnership limits for large accounting firms, requiring audit firms to meet quality management and ethical standards to be eligible for engagement by audited entities, and improving audit surveillance.
Does structural separation mean auditors lose access to specialists?
No. A separately owned audit firm can employ specialists directly or engage them through transparent, arm’s-length arrangements with appropriate independence and confidentiality controls.
Does a smaller organisation still need an audit?
Size alone does not answer the question. What matters is who relies on the financial information and what would follow if it were materially wrong. Depending on those circumstances, the right response may be a full audit, a review or another proportionate form of assurance. Your obligations under the Corporations Act, your constitution or your funding agreements may also settle the question, so check them before deciding.
Steven Watson, Managing Director of National Audits Group.
Talk to a specialist audit firm
National Audits Group is an independent audit and assurance firm that does audit work only. If you would like to discuss what these reforms could mean for your organisation, or for your practice and its clients, talk to us about financial statement and AFS licensee audits or contact our team.
Reference
Australian Government, The Treasury, Regulation of accounting, auditing and consulting firms in Australia – Options Paper, released 1 July 2026. Consultation closed 12 August 2026. https://consult.treasury.gov.au/c2026-781711