Australian Regulator Orders Big Six Audit Firms to Self-Assess After 42 Findings

Australia's corporate regulator has told the country's six largest audit firms to review their own practices and set out remedial plans, after its latest surveillance cycle found persistent weaknesses in how auditors test management's judgments. The Australian Securities and Investments Commission published the findings in its Report 842 on oversight of financial reporting and audit for 2025-26 on Friday, naming BDO, Deloitte, Ernst & Young, Grant Thornton, KPMG and PwC as the firms required to act.

The instruction follows a separate review of how auditors comply with independence and conflict of interest obligations. The regulator said it will monitor whether the firms' action plans produce results, and Commissioner Kate O'Rourke said the aim was meaningful and lasting improvement in independence practices. The commission has made financial reporting and auditor misconduct enforcement priorities for 2026.

What the Surveillance Found

During the year, the regulator examined 353 financial reports spanning 311 companies and 42 registrable superannuation entities, with findings on retirement funds issued in a separate report. It widened its audit file review to 25 files across 12 firms, covering 19 companies and six superannuation entities, up from 15 files in the previous cycle. It also ran financial reporting surveillance on 30 companies.

The commission issued 15 comment forms detailing 42 findings to auditors at 11 firms. The deficiencies included insufficient challenge to management assumptions, inadequate audit evidence and failures to document compliance with ethical, independence and quality management requirements. O'Rourke said surveillance showed that some preparers of reports and some auditors did not push back on significant judgments, including on revenue recognition, impairment and asset valuations.

The regulator also reported that its interventions led ten companies to make or agree to improve disclosure of material business risks in their operating and financial reviews. Other entities amended or agreed to adjust asset valuations, deferred tax assets, employee benefit provisions and general disclosures.

Why It Matters for Audit Careers

For auditors and accounting staff, the findings point to demand for stronger evidence gathering, clearer documentation and more skeptical review of management's numbers. Regulatory risk management is becoming a core part of the audit and finance function rather than a back-office task, and firms are being asked to show how training, supervision and quality controls address the gaps identified.

The reputational pressure on the largest firms has been building. The report noted that concern about trust in the profession has grown this year, after KPMG acknowledged that its handling of a whistleblower and its investigation of the allegations had fallen short. Several institutional clients have since moved away from the firm. Macquarie's board rejected KPMG as auditor from 2027 and will stay with PricewaterhouseCoopers, while Australian Ethical is the latest to drop KPMG and will begin a competitive tender for a new external auditor from the 2028 financial year.

The regulator said auditors had submitted remediation proposals that it will monitor during 2026-27. It also plans to expand its surveillance to include managed investment schemes. Since July 1, 2025, the commission has started Federal Court proceedings against three auditors and two audit firms over alleged misconduct.

What to Watch Next

Attention now turns to the action plans the six firms must deliver and whether the regulator reports measurable improvement in the next cycle. Firms that invest in documentation standards, independence controls and evidence review are likely to face fewer comment forms, while those that treat remediation as a paperwork exercise risk further scrutiny. For finance professionals weighing career moves, the direction is clear: audit and compliance roles that combine technical judgment with defensible documentation are in demand.