I was pleased this week to offer these thoughts as part of Bloomberg Tax’ s “Insights and Commentary”:

Revelations of KPMG Australia’s misuse of confidential client information have spurred public indignation. Possible long-term consequences fall into four areas: changes in the country’s auditor oversight regime, the local market impact on KPMG, the firm’s international network, and the profession overall.  

The most likely outcomes are that cool heads and good sense will prevail among Australian officials, a smaller KPMG Australia firm under new leaders will struggle to survive and reestablish itself, and globally both KPMG and the capital markets will shrug and carry on. 

The Local Authorities

When KPMG’s internal assessment and investigation — as well as its public positions and disclosures — were admitted to “fall short,” it lost control of the public dialog to politicians, regulators, and business media. Serving their own interests and constituencies, those parties are driving the sustained levels of criticism.  

Still-fresh memories of the 2023 airing of PwC’s “tax leak scandal” create a sense of déjà vu in the sound bites of the Australian politicians’ speeches and witness questioning. The Australian Securities and Investments Commission’s lobbying for legislative relief from shortcomings and limitations on its oversight powers is particularly plaintive. 

The desirability of a well-functioning professional oversight regime should go without saying. Statutory audit only exists under government license, and auditors have lived with both the benefits and the tensions at least since the passage of the foundational US securities laws in the 1930s. 

But that doesn’t mean that revisions to a regulator’s authority legislated in a hostile environment would be optimal or even positive. 

In July, Australia’s Treasury released the results of a short consultation and a broad catalog of proposals that attracted mixed reactions. Tabled for consideration are limitations on the size of accounting partnerships, requirements that companies periodically rotate or put their audits out for tender, and operational or even complete structural separation of the firms’ audit and consulting practices. 

Reality must intrude if the idea of “breaking up” the large firms is pursued. The complexity of modern audits routinely requires a range of specialist skills and expertise that reside in the consulting practices of the large firms. These include transfer pricing, actuarial, data analytics, valuations and financial instruments, artificial intelligence, and cybersecurity.

Accessing those skills within their organizations enables auditors to identify and manage independence constraints and conflicting business interests. This compliance monitoring architecture wouldn’t be available if audit-only firms were required to seek outside suppliers.   

To address the disconnect between the Australian Treasury proposals and the requirements on the ground, the profession’s advocates must accordingly be persuasive in response to their critics’ passionate but misguided suggestions.   

KPMG’s Local Firm

For KPMG’s business, the local effect will be generational, including prohibitions or agreements not to bid on government work and a bleeding of both new and existing clients. The biggest loss was the decision by the Macquarie Group — the country’s fifth-largest bank and reportedly “the largest contract of its kind in Australia” — to reverse its previously announced decision to move its audit from PwC to KPMG. 

Internally, senior-level firings, resignations, role reductions and announced departures include the chief executive, national chairman, chief operating officer, audit practice head, general counsel, and head of human resources. A cost-cutting and restructuring program known as Project Vector has reportedly  reduced KPMG Australia’s workforce by 5%. 

In ordinary times, the firm’s AU$557 million borrowing line  ($389 million) would reflect conventional practice, by accounting partnerships managing their partner profit distributions. Today, however, that obligation is hostage to the firm’s ability to stabilize and rebuild itself.

The authorities in Australia haven’t threatened KPMG with the “nuclear option” of a forced closure of its practice so far. Yet the survivability of KPMG’s local firm under the current threats can’t be predicted with confidence.  

International Perspectives

Globally, the perspective shifts. In Australia, KPMG’s reported revenue of AU$2.3 billion for fiscal year 2026 was about 4% of the network’s global revenue from continued operations of $39.8 billion. Of that contribution, a sufficient country presence is required to service the in-country operations of its non-Australian global-scale clients – the likes of Accenture plc, Citigroup Inc. and Pfizer Inc.

The scale and complexity of that work would make it appropriate to either assign to a slimmed-down entity within the KPMG network or outsource to mid-sized or local firms. KPMG’s roster of locally headquartered clients is also limited enough to be open to relocation to other firms — Big Four or otherwise. 

From the perspective of KPMG’s global strategists, the size of its Australian practice is simply not material. It could be shut down, whether by official sanction or as a matter of business strategy, without threatening the international network’s integrity or stability. 

There are implications for the entire global model of Big Audit, because the concern would differ if in the US or the UK, China or Japan, or a handful of others. For KPMG as for each of the Big Four, auditor presence at scale in all of the world’s larger economies is essential to serve both large, locally headquartered global companies and the material local operations of clients located elsewhere.

That global perspective explains the contrast between the headline level of interest in Australia and the modest attention outside the country. 

Among the indifferent are the Financial Reporting Council in the UK, which in the post-Carillion years has primarily engaged in internal house-work, achieving none of the “reforms” of significance urged at the time; the Securities and Exchange Commission, which is focusing on the politically energized crypto sector; and the Public Company Accounting Oversight Board, which faces reductions in staff and budget amid increasing skepticism about its mission and scope.   

Unsurprisingly in this context of indifference, media attention to KPMG Australia outside Australia is patchy and desultory. 

The overall impact of KPMG’s misbehavior on the global stage falls under Sayre’s Law, of which varying attributions include that of Henry Kissinger describing the heated atmosphere of academia: The politics are so vicious, because the stakes are so small.  

Jim Peterson is a lawyer and a 19-year veteran of Arthur Andersen’s in-house legal group. His practice focuses on financial and accountancy related issues

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