Macquarie Group has abandoned plans to appoint KPMG as its future auditor, delivering one of the most tangible commercial consequences yet from the crisis engulfing KPMG Australia.

In a statement released Wednesday, Macquarie said the boards of Macquarie Group and Macquarie Bank had determined to “no longer recommend the appointment of KPMG as auditor” at the group’s 2027 annual general meeting. Incumbent auditor PwC will instead be retained.

Macquarie completed its audit tender in late 2025 and planned for KPMG to succeed PwC following an 18-month transition, subject to regulatory approvals and shareholder approval at the 2027 AGM. KPMG would have audited Macquarie for the financial year beginning 1 April 2027.

But Macquarie said continued scrutiny of KPMG Australia’s audit practice — including information exposed by the Parliamentary Joint Committee on Corporations and Financial Services — prompted it to make formal enquiries of the firm.

Those enquiries have now produced a striking assessment.

Macquarie said its boards have concerns about KPMG Australia in two of the key criteria used to select an auditor: its capacity to deliver the audit following the departure of several members of the proposed Macquarie audit team, and — in a stunning rebuke of the Big Four firm — its culture.

The Boards currently hold concerns in respect of KPMG Australia and its audit practice in two of the key criteria considered in the audit tender completed in late 2025, namely capacity to deliver the audit given several key members of the proposed KPMG Australia audit team have departed; and culture, including a culture that transparently discloses issues.

Macquarie Group Statement

The decision follows months of fallout from KPMG Australia’s confidentiality and whistleblower scandal. Big4News reported earlier this month that Macquarie chairman Glenn Stevens had said it was conceivable Macquarie could reconsider the appointment while seeking assurances that confidential information from other audit clients had not been used in KPMG’s pursuit of the Macquarie mandate.

At the time, that left open the possibility that KPMG could satisfy Macquarie’s concerns. Wednesday’s announcement closes that door.

The financial stakes are substantial. The Australian Financial Review described the Macquarie relationship as worth about A$95 million annually when PwC’s work for Macquarie-managed funds is included. Macquarie’s own FY2026 accounts show PwC received A$69.3 million for audit, audit-related and other services provided to the group, plus A$24.6 million for audit services provided to Macquarie-managed funds — approximately A$93.9 million in total.

KPMG Australia chief executive John Sams acknowledged the significance of the loss, saying Macquarie’s decision was “a clear reminder that the consequences of our past failings are real.” He said rebuilding trust would require sustained action, transparency and time.

For PwC, the decision amounts to an unexpected reprieve. The firm has audited Macquarie since 1993 and had been preparing to relinquish the mandate to KPMG. Macquarie said it has now reconfirmed PwC’s ability to deliver the global audit and that its next comprehensive review of its audit firm is due by 2031.

For KPMG, the consequences are harder to dismiss as reputational damage alone. It has now lost a major audit mandate that it had already won — and the client has publicly cited KPMG’s culture as one of the reasons why.

This is part of Big4News’ continuing coverage of the KPMG Australia Audit Leak Scandal.

For decades, the Big Four have had a highly effective Janus face: they present themselves to clients as global brands, able to assemble teams across borders; while simultaneously maintaining the status of separate national entities, connected, but generally responsible for their own liabilities.

The collapse of China Evergrande Group, and the many findings of improper conduct by PwC auditors in China and Hong Kong, may now provide one of the most consequential tests yet of how robustly that distinction will hold up in court.

On Wednesday, 26 August, a Hong Kong court rejected an attempt by PricewaterhouseCoopers International Limited (PwCIL) — PwC’s global coordinating entity — to remove itself from litigation brought by Evergrande’s liquidators.

The liquidators, Edward Middleton and Tiffany Wong of Alvarez & Marsal, are seeking approximately RMB57 billion (approximately US$8.4 billion) from PwCIL, PwC Hong Kong and PwC’s mainland China firm over alleged negligence connected with the audits of Evergrande. PwCIL’s potential share of the claim might reach RMB38 billion (approximately US$5.6 billion).

This is shaping up to be a test case as to whether the organisation sitting at the centre of a Big Four network can be held legally responsible for audit failures occurring inside one of its member firms.

PwC tried to stop that question reaching trial

PwCIL has taken the position that it was not Evergrande’s auditor, and that PwC Hong Kong and PwC China are not its subsidiaries. Its lawyers argued that PwCIL owed Evergrande no duty of care in relation to its audits.

The liquidators, on the other hand, asserted that PwCIL sits at the centre of the PwC network and bears responsibilities relating to the standards maintained by its member firms.

According to the Financial Times, Deputy High Court Judge Patrick Fung has now decided that it was “at least arguable” that PwCIL owed Evergrande a duty of care, and that discovery of documents and interrogatories were needed to throw more light on the case.

So for clarity, it is not the case that the judge has decreed that the global PwC entity is liable for Evergrande’s losses. What has happened is that it has concluded that the liquidators’ case against the global entity should be investigated.

That means that a harsh light is finally going to shine on the murky and convoluted setups of the Big Four firm.

The paradox at the centre of the PwC network

The PwC network is not one firm. Member firms are separate legal entities. This is how the firm describes its structure:

the PwC network consists of firms which are separate legal entities. The firms that make up the network are committed to working together to provide quality service offerings for clients throughout the world. Firms in the PwC network are members in, or have other connections to, PricewaterhouseCoopers International Limited (PwCIL), an English private company limited by guarantee. PwCIL does not practise accountancy or provide services to clients. Rather its purpose is to facilitate coordination between member firms in the PwC network.

What is ‘PwC’?

Member firms are permitted to use the PwC name, resources and methodologies, but they cannot act as agent for PwCIL or another member firm, and each is liable only for its own acts and omissions.

Discovery may matter more than the US$8.4 billion headline

PwC’s public statements tell us how the network is supposed to work. Litigation could establish in considerably greater detail how it actually works.

Questions will undoubtedly arise about the practical relationship between PwCIL and individual member firms, with particular focus on how much authority the international organisation can exercise over individual firms.

It will also expose the complicated structures the firm has put in place over the last few decades to protect partners from liability in cases such as Evergrande: nested companies with similar names, designed to confuse plaintiffs; partners joining the partnership as limited liability companies instead of in their own names; partners hiding assets in their spouse’s or children’s name. The list goes on.

That is potentially uncomfortable territory for all of the Big Four.

The networks derive much of their commercial value from being able to promise consistency across borders. Yet their legal resilience depends substantially on the proposition that the firms providing those services remain separate, and that their complex structures are hard to trace. Many a case has been won on the basis of the plaintiff suing the wrong company in the network.

The liquidators are now going to force a court to examine exactly how these structures operate.

The underlying audit findings are unusually severe

The legal jeopardy is serious, because the findings of regulators in Hong Kong and China have implicated the local PwC firms in severe misconduct.

Hong Kong’s Securities and Futures Commission concluded that Evergrande had overstated audited revenue by RMB213.9 billion, or 44.79%, in 2019, and by RMB350.2 billion, or 69.03%, in 2020.

Profits reported at RMB33.5 billion and RMB31.4 billion for the two years should, the regulator found, instead have been losses of RMB7.12 billion and RMB19.9 billion.

The SFC said PwC Hong Kong did not perform effective site inspections and sufficiently verify supporting evidence, and “actively acquiesced” in management manipulation of audit samples and site inspections that helped conceal premature revenue recognition.

PwC Hong Kong subsequently agreed to set aside HK$1 billion (approximately US$127.6 million) for compensation to eligible independent minority shareholders. The matter was settled without PwC admitting liability.

Hong Kong’s Accounting and Financial Reporting Council also highlighted serious misconduct by the firm’s auditors. It concluded that PwC had facilitated the inflation of Evergrande’s profits and liquidity and issued unmodified audit opinions without sufficient appropriate audit evidence — in some instances despite knowing that such evidence was lacking. The council fined the firm HK$300 million (approximately US$38.3 million) and imposed a six-month restriction on taking new public-interest-entity engagements.

Mainland China’s findings were no less serious. The Chinese Ministry of Finance concluded in 2024 that PwC Zhong Tian had serious deficiencies in its audit procedures and failed to identify material misstatements in Evergrande’s financial statements. Among its findings, the ministry said PwC personnel had lost their independence by participating in the preparation of Evergrande’s consolidated financial statements and preparing adjustment entries that inflated profits.

The Ministry’s decision also found serious failures in audit procedures around revenue recognition.

The China Securities Regulatory Commission separately imposed sanctions after finding that PwC had failed to perform its audit responsibilities diligently in the 2019 and 2020 Evergrande audits.

Together, the mainland penalties against PwC reached RMB441 million (approximately US$65.6 million).

How is PwCIL set up?

PwCIL is registered at Companies House in England as PricewaterhouseCoopers International Limited. It is a private company limited by guarantee without share capital, classified as a non-trading company.

In other words, this is not an asset-rich setup, which raises serious questions as to how it would fund a large payout if the court decides it is liable. What obligations, if any, do member firms have to fund PwCIL? And how would an extreme liability event be distributed through the network?

The firewall has been tested before

Evergrande is not the first case in which plaintiffs have attempted to move beyond the national audit firm and towards the organisation at the centre of a Big Four network.

One of the most important precedents came from the collapse of Italian dairy group Parmalat.

In 2009, a US federal court refused to grant summary judgment to Deloitte Touche Tohmatsu, then Deloitte’s global coordinating organisation, on claims connected with the work of Deloitte Italy.

In the Parmalat ruling, the court found sufficient evidence to question whether Deloitte Italy was acting as an agent of the global Deloitte organisation and whether the latter exercised sufficient control. The issue was never finally decided: after the court refused to certify an interlocutory appeal, the Deloitte defendants settled the investor claims for US$8.5 million in 2009.

PwC itself has also encountered the issue before, in the aftermath of the Satyam accounting scandal in India. A US securities class action was settled in 2011 for US$25.5 million by a group of PwC entities that included Indian PwC firms, PwC US and PricewaterhouseCoopers International Limited.

So the legal firewall surrounding the Big Four networks is not untouchable, and Evergrande is not unprecedented.

What is different is the potential scale. A US$25.5 million settlement is one thing. A claim exposing the global coordinating organisation to as much as US$5.6 billion is something else entirely: a potentially catastrophic event.

So could Evergrande become PwC’s black swan?

The answer to that is yes, but not solely because of the financial exposure. The real risk is that this case could expose, and potentially demolish, one of the foundational risk-management mechanisms architected by the Big Four: the fragile ecosystem that has enabled the firms to sell the advantages of global integration, while evading accountability for work performed by the hundreds of thousands of professionals in their networks.

Lawyers pursuing accounting firms elsewhere will be watching closely. If discovery produces evidence showing a materially greater degree of global control than the networks’ legal descriptions suggest, or if the judge eventually finds PwCIL responsible for failures arising inside a national member firm, the implications could reach beyond Evergrande — and beyond PwC.

The black swan, if there is one, has not landed yet. But a Hong Kong court has just opened the door through which it might arrive.

This article is part of the Big4News Investigations & Analysis series, which examines the structural forces shaping Deloitte, PwC, EY and KPMG.

About Claudine Cassar

I’m a corporate anthropologist and former Deloitte equity partner. I sold my technology business to Deloitte in 2016 and led the Malta Consulting team for five years. I am the founder and editor of Big4News, which provides independent, clear analysis of PwC, Deloitte, EY, and KPMG — free from corporate spin.

More about me.

Find me on LinkedIn, X, Instagram, or my author website.

Feel free to reply to this newsletter — I read every reply.

Deloitte has secured further work from the US Air Force, continuing a stream of substantial defence assignments more than a year after the Pentagon launched a drive to cut consulting contracts and bring more expertise in-house.

The latest contract modification does not show that the Pentagon has abandoned that policy. Viewed alongside other Deloitte awards since the policy was introduced, it instead points to a more selective approach: some consulting and professional-services work is being cancelled or targeted for insourcing, while other external expertise continues to attract substantial spending.

On 22 July, Deloitte Consulting LLP was awarded a $20.5 million firm-fixed-price modification to an existing Air Force technical-support contract, according to the Pentagon’s contract announcement.

The modification increased the cumulative face value of contract FA7014-24-F-0461 from $35.8 million to $56.4 million. Work is due to continue in Washington, DC, through September 2029, with just over $7 million in fiscal 2026 funding committed at the time of the modification.

Federal contracting data identify the underlying order as professional services and subject-matter-expert support for the Air Force’s Basing and Logistics Analytics Data Environment, or BLADE. The order was originally awarded in September 2024.

Because the July modification expands an order first awarded before the Pentagon’s consultant-reduction drive began, it is better understood as evidence that substantial external support arrangements have continued — and in this case expanded — under the new policy, rather than as a wholly new outsourcing decision.

On 10 April 2025, Defense Secretary Pete Hegseth ordered the immediate termination of several IT and consulting contracts.

One of them explicitly involved Deloitte: Hegseth described:

“a Defense Health Agency contract for consulting services from Accenture, Deloitte, Booz Allen, and other firms that can be performed by our civilian workforce.”

The Pentagon said the Defense Health Agency cuts covered $1.8 billion of consulting contracts awarded to various private-sector firms. It did not disclose how much of that amount related specifically to Deloitte.

The DHA contracts formed part of a broader package of terminations that Hegseth valued at $5.1 billion, with nearly $4 billion in estimated savings. The cuts also included an Air Force enterprise-cloud contract, Navy business-process consulting, DARPA IT help-desk services and another group of consulting contracts.

But Hegseth’s April 2025 memorandum went beyond cancelling individual contracts. He also ordered the Pentagon’s chief information officer to develop a plan to bring IT consulting and management services into the department’s civilian workforce.

Large Deloitte awards nevertheless continued during the period in which the new policy was being introduced. On 21 April 2025, 11 days after Hegseth’s memorandum, the Air Force announced two substantial awards to Deloitte entities. The announcement date alone does not establish when the underlying procurement decisions or approvals were made. At least one was already underway: the Air Force had published its notice of intent for the $82.5 million Deloitte & Touche award on 3 April, a week before Hegseth’s memorandum.

Deloitte Consulting received a $135.5 million firm-fixed-price contract for technical support services. The Air Force said the work included predictive analytics, consolidation of Air Force A4 IT systems, cybersecurity, improvements to logistics and security-forces data, base-defence systems and modernisation of A4 information technology using artificial intelligence. Two offers had been received.

Deloitte & Touche LLP was separately awarded an $82.5 million firm-fixed-price contract for financial improvement work, including audit-remediation enterprise IT and security-control services. That contract was awarded on a sole-source basis.

The awards show that the Pentagon’s move towards greater insourcing did not amount to an immediate or blanket withdrawal from external professional services. They also involved different types of work — ranging from technical and IT support to financial improvement and audit remediation — which may not all fall on the same side of the Pentagon’s emerging insourcing boundary.

The policy was expanded and given more detailed implementation rules the following month. In a 27 May 2025 memorandum, Hegseth said the department “must in-source more expertise” and imposed additional controls on external professional services.

For new IT consulting and management-services contracts covered by the policy, Pentagon components were required to demonstrate that the work could not be performed by existing Defense Department agencies or personnel, or obtained directly from a service provider rather than through a consultant or systems integrator.

They also had to provide a cost-benefit analysis, evidence that alternatives had been considered and justification for why the work could not be brought in-house before obtaining senior approval.

The memorandum also applied review requirements to a broader category of advisory and assistance services, including consulting, expert advice, studies, analyses and technical expertise. Pentagon components were instructed to prioritise existing internal capabilities before seeking such services externally.

By the end of May, Hegseth was publicly arguing that the Pentagon had become

“very much overreliant on management consultants and contractors.”

A Pentagon account published in June said the Air Force and the Department of Government Efficiency had conducted a line-by-line review of more than 50 contract vehicles in the service’s largest management-consulting programme.

According to Hegseth, that review produced $1 billion in savings on the existing programme and cancelled a planned $3.8 billion extension.

The Deloitte work nevertheless continued into 2026.

On 24 April this year, Deloitte & Touche LLP received an $82.1 million firm-fixed-price call order covering information technology, financial management, financial improvement and audit remediation.

The Air Force said the order would provide financial audit-remediation services through April 2029. Four offers were received, and $30.7 million in funding was committed when the order was awarded.

Three months later came the latest $20.5 million modification for Deloitte Consulting.

Taken together, the awards do not establish that the Pentagon has reversed or rolled back its consultant-reduction policy. The July modification relates to an order originally awarded in 2024, while the April 2026 Deloitte & Touche award concerns separate Air Force financial and audit-remediation services.

There is also no evidence in the records reviewed that the Defense Health Agency consulting work involving Deloitte that was targeted for termination in April 2025 has subsequently been restored.

Instead, the contracting history points to a more selective policy.

The Pentagon has cancelled billions of dollars of consulting and IT work, imposed additional approval requirements and told its components to make greater use of internal expertise. At the same time, it has continued to award Deloitte entities substantial contracts for services ranging from technical support and information technology to financial management and audit remediation.

The resulting question is therefore not whether the Pentagon has abandoned its consultant crackdown, but how it is deciding what should be brought in-house and what still warrants external support. Deloitte’s continuing Air Force work provides a case study of that boundary: some outside consulting has been deemed unnecessary or replaceable by government employees, while other technical and financial assignments continue to receive substantial funding.

What remains less visible from the public contracting record is how those criteria are being applied in individual cases — including why particular Deloitte assignments have continued or expanded while other consulting work has been judged suitable for insourcing.

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KPMG Australia’s Project Vector — its cost-cutting and restructuring programme — has begun to bite. 27 partners and around 360 employees are leaving the firm, reducing its workforce by approximately 5%. Most of the affected roles are in Consulting and Business Services.

On August 24, the firm released its FY2026 results. It reported a total revenue of A$2.257 billion, which KPMG said represented a 1% year-on-year decline. Four of its five divisions recorded growth, with the standouts being Audit & Assurance, which grew by 11.0%, and Tax & Legal, which grew by 10.9%.

The one division that did not do well was Consulting, which registered a decrease in revenue of 16.9% in the year to June 2026: the newly appointed CEO pointed to the country’s economic slowdown, a reduction in government spending on consultants, and the impact of AI to explain this phenomenon.

However, anyone who has been following recent events at KPMG Australia will be well aware that this is by no means the whole story. In fact, the firm itself said it reviewed its costs and future workforce needs in response to

“continued economic weakness, difficult market conditions and the impact of the firm’s conduct and whistleblower matters”.

It is clear that KPMG’s consulting downturn predates the scandal — but in my view, the scandal has made that downturn much harder for KPMG to absorb.

Consulting was already struggling before the scandal became public

KPMG’s consulting problem did not begin in March 2026, when Senator O’Neill first divulged news about the whistleblower scandal in parliament.

In FY25, before the whistleblower allegations became public, Consulting revenue had already fallen 18%, because of reduced government spending and the broader economic slowdown. Yet overall KPMG revenue declined only 3%, because Audit grew 7%, Tax & Legal 8%, Enterprise 13% and Deal Advisory & Infrastructure 2%. Careful cost management improved profitability, and average equity-partner remuneration actually increased 10.3%.

A year later, Consulting has fallen another 16.9% and average equity-partner remuneration is down 13%. So the reduction in partners and employees has not happened in a scandal vacuum. Two consecutive years of severe Consulting contraction cannot simply be carried indefinitely.

However, that does not mean that the scandal had no bearing on the dramatic job cuts that are resulting from Project Vector. KPMG is no longer just dealing with a weak Consulting market. It is dealing with a weak Consulting market while simultaneously trying to contain a crisis of trust.

A downturn is one thing. A trust crisis is another.

Economic downturns eventually turn. A consulting project postponed because budgets are tight can reappear when investment resumes. A government that has reduced expenditure on consultants can increase it again. A client delaying a transformation programme can restart it.

A shattered reputation is a different story. Over the last few months:

KPMG has voluntarily agreed not to bid for new Commonwealth work until the Department of Finance completes an independent review of its governance, ethics and integrity.

Lendlease ended its extraordinarily long audit relationship with the firm after the misuse of its confidential information came to light.

Macquarie, meanwhile, is reconsidering whether KPMG should take over its A$75 million-plus annual audit mandate. KPMG was selected in 2025 but is not due to start the audit until 2028.

Optus chairman John Arthur told Parliament that KPMG’s sharing of Optus information amounted to an “egregious breach of professional responsibilities” and said Optus would be watching the firm “like a hawk”. Westpac described growing frustration over KPMG’s drip-feed of information.

That is not ordinary cyclical weakness. It is reputational impairment in a business whose product ultimately depends on trust.

In an ordinary downturn, management can cut discretionary expenditure, reduce recruitment, accept temporarily lower partner profits and give a struggling practice time to recover.

The scandal reduces KPMG’s financial room to use those levers.

And KPMG already entered this crisis with relatively little room to spare.

Then there is the A$557 million debt load

As Big4News reported in June, KPMG Australia was carrying A$557 million in bank debt, borrowed from NAB and DBS, equivalent at the time to roughly A$815,000 per partner.

The lending arrangements included revenue covenants. The Australian reported that KPMG was at risk of breaching those covenants as clients reconsidered their relationships with the firm, although so far there has been no public evidence that a covenant has actually been breached.

So KPMG’s FY2026 results constitute a concerning data point. The firm’s revenue has moved from:

A$2.553 billion in FY23, to

A$2.386 billion in FY24, to

A$2.315 billion in FY25, and now to

A$2.257 billion in FY26.

Banking Day subsequently examined the same balance-sheet problem and reported that KPMG International had reportedly intervened to restrict partner exits not only because of the risk of disruption to audit work, but also to avoid capital repayments to departing partners. It also reported that some of KPMG Australia’s previous borrowing had supported earlier partner exits.

That is a very important point — partnership exits can themselves consume cash precisely when liquidity is under pressure.

And now the Australian firm appears to need outside help.

ABC reported that KPMG Australia had sought financial support from KPMG International, describing the support as necessary for the local firm to remain solvent.

The Australian has separately reported that KPMG International is negotiating a substantial loan to stabilise the Australian business, putting the potential facility at A$200 million.

Project Vector therefore looks different when viewed through the balance sheet.

It is not simply an exercise in matching Consulting headcount to Consulting revenue.

It is also about restoring financial headroom to survive the storm, which so far shows no sign of abating.

So who has paid for the failures so far?

KPMG’s crisis has removed most of the leadership that presided over it. But departure has not produced the same financial outcome for everyone.

The figures below need to be read carefully. Some are actual remuneration, some are maximum performance opportunities, some retirement entitlements have been confirmed without their value being disclosed, and some final exit payments remain private.

Andrew Yates — former chief executive

KPMG said Yates resigned as the executive with “ultimate responsibility” for management of the whistleblower process and the management-led investigations.

According to leaked KPMG remuneration documents reported by The Saturday Paper, Yates received A$3.2 million in total remuneration in FY25.

Martin Sheppard — former national chairman

Sheppard chaired KPMG Australia’s board during the failed response to the whistleblower allegations. He subsequently acknowledged his overall governance responsibility as chairman for processes that failed to produce the required result.

Leaked remuneration documents showed an FY25 base distribution of A$1.9 million, with a maximum performance distribution of another A$778,000. His final retirement payment has not been publicly disclosed.

Julian McPherson — former head of Audit & Assurance

McPherson was National Managing Partner of Audit & Assurance and resigned alongside Yates after KPMG acknowledged shortcomings in the handling of the whistleblower and its investigations.

The leaked remuneration documents showed an FY25 base distribution of A$1.5 million, with a maximum performance distribution of A$755,000 — he lost a separate A$389,000 bonus following an unsatisfactory performance rating over the Optus matter. McPherson confirmed that he will receive entitlements under KPMG’s retirement agreement. The value of those entitlements has not been publicly disclosed.

Kim Lawry — senior audit partner

Lawry led KPMG’s successful Westpac audit pitch and attended the October 2023 meeting at which confidential Lendlease information was discussed.

She received more than A$1.4 million in FY24, including a A$100,000 exceptional distribution. Leaked documents showed an FY25 base distribution of just over A$1 million, with a maximum performance distribution of A$508,000.

KPMG later fined Lawry over the Lendlease matter, and she left after Westpac requested her removal from its audit. Lawry told Parliament that she will receive entitlements under KPMG’s retirement agreement. Their value has not been disclosed.

Paul Rogers — audit partner

Rogers was the audit partner who accessed and displayed confidential Lendlease information. KPMG subsequently sanctioned him and announced his departure.

Leaked remuneration documents showed an FY25 base distribution of A$526,000, with a maximum performance distribution of A$210,000. No reliable public figure has been disclosed for Rogers’ final retirement or exit payment.

Eileen Hoggett — former chief operating officer

Hoggett is an important exception to the line of senior figures leaving KPMG with generous retirement packages. She was expelled from the firm after new evidence emerged that contradicted her earlier denials concerning confidential Lendlease documents retained in her locker.

Leaked remuneration documents showed an FY25 base distribution of A$1.5 million, with a maximum performance distribution of A$755,000.

Hoggett told Parliament that her expulsion meant she received no retirement payment, no accrued annual leave, no long-service leave and no pay for her final month.

Dorothy Hisgrove — former National Managing Partner, People & Inclusion

Hisgrove was involved in KPMG’s handling of the whistleblower matter. That said, reports indicate that Hisgrove and general counsel Louise Capon had advocated stronger action against Hoggett and were overruled.

Leaked remuneration documents showed Hisgrove had an FY25 base distribution of A$1.2 million, with a maximum performance distribution of A$622,000.

The Australian reported that Hisgrove was expected to receive around A$2 million on departure. That figure was reported as an expected payout, not as a subsequently confirmed payment.

The contrast is harsh: some senior figures connected with the misconduct or the governance failures retain retirement entitlements, while another group of partners—reportedly uninvolved in the scandal—is now being pushed out under Project Vector, alongside around 360 employees.

Two very different kinds of departure

Before KPMG confirmed that 27 partners would leave, The Australian reported that partners then being selected for redundancy had not been involved in the audit scandal.

It also reported that their exit terms were being reduced: senior partners who might previously have received nine months’ notice were being offered six months, while partners with shorter tenure could receive three months. For a hypothetical partner earning A$2 million a year, the newspaper calculated that moving from nine months to six would reduce the notice payment by A$500,000.

Those reports preceded the final announcement, so they should not be read as establishing the individual terms of every one of the 27 partners now leaving.

But they expose an awkward contrast. McPherson and Lawry have confirmed that their departures come with entitlements under KPMG’s existing retirement agreement. But partners selected for Project Vector—who were reported not to have been involved in the scandal—were meanwhile being offered less generous exit terms than previously applied.

That is where the accountability question becomes difficult to avoid.

And then there is Michael Ebeid

Ebeid is different again. There is no suggestion that he participated in the underlying misuse of confidential client information. But he is implicated in the failure of governance.

He was already an independent KPMG director and one of the independent board members involved in oversight of the firm’s investigation of the whistleblower allegations. After Senator Deborah O’Neill raised those allegations publicly, emails subsequently released by Parliament showed Ebeid describing many of her statements as “completely false” and her intervention as inappropriate and unfair.

He later apologised, saying that he had not known the full range of facts and would not have written the email had he known what subsequently emerged.

KPMG nevertheless chose Ebeid to become its first independent chairman—the person charged with strengthening oversight and accountability—and he subsequently disclosed that the role carries a A$1 million annual base salary.

KPMG is entitled to believe that someone who witnessed the governance failures from inside the boardroom is particularly well placed to fix them.

In my view, however, Ebeid is an awkward symbol of KPMG’s governance reset. The firm has promoted someone who was already inside an oversight structure that failed to get to the bottom of the whistleblower’s allegations, and is paying him A$1 million a year to repair it. It must be a tough pill to swallow for the partners and employees who are now being shown the door.

PwC shows why FY26 may not tell us very much

KPMG’s current revenue decline is, of course, not the end of the impact of the scandal. After all, Australia has a recent Big Four case study we can refer to in order to benchmark the potential extent of the damage that lies ahead for the firm.

PwC Australia’s tax-leaks scandal erupted in 2023.

In FY23, PwC reported total revenue of A$3.35 billion. By FY24 that had fallen 26.1 per cent to A$2.475 billion. PwC said the reduction was driven primarily by the sale of its government consulting business, together with difficult external conditions that reduced demand for Consulting and Financial Advisory. Average partner income fell 12.7 per cent. The contraction continued. PwC’s FY25 Audit Transparency Report shows total revenue falling again to A$2.085 billion.

Only now—three years after the scandal became public—are there signs of a return to growth. A leaked internal PwC memo said revenue grew about 6% in the six months to June 2026, described as the firm’s first return to growth since 2023.

KPMG’s trajectory will not necessarily resemble PwC’s. The businesses, scandals and market circumstances are different. But PwC demonstrates something important: the revenue consequences of a professional-services scandal can take years to work through the accounts.

Which brings us back to KPMG’s most surprising FY26 number.

Audit grew 11%. How does that make sense?

KPMG’s Audit & Assurance business—the division at the centre of the confidentiality scandal—grew 11% in FY26. At first glance, that seems almost perverse. But audit revenue moves differently from consulting revenue.

The appointment and replacement of auditors of public companies is governed by formal processes. ASIC’s guidance shows that auditor resignations can require regulatory consent and replacement frequently runs through shareholder and AGM procedures. ASIC explicitly seeks to avoid changes interfering with completion of an audit already under way.

KPMG’s FY26 Audit revenue is therefore likely to reflect mandates largely in place before the full consequences of the scandal were known.

Lendlease has already ended its longstanding relationship with KPMG. Macquarie’s prospective A$75 million-plus mandate is under review, but KPMG is not even due to begin that audit until 2028.

PwC provides an illuminating comparison here too.

Despite PwC’s total revenue falling from A$3.35 billion in FY23 to A$2.085 billion in FY25, its revenue from audits of financial statements moved from A$540 million in FY23 to A$575 million in FY24 and A$571 million in FY25.

KPMG’s 11% Audit growth should therefore not be interpreted as proof that Audit has escaped the economic consequences of the current crisis.

It is simply too early to see them.

Project Vector may be the beginning, not the final bill

KPMG’s latest restructuring can therefore be read in two ways.

The narrow reading is that Consulting revenue has fallen sharply for a second consecutive year, and KPMG is cutting Consulting capacity accordingly.

That is true. But it misses the wider financial picture.

KPMG is carrying a large debt burden. Revenue has now declined for three consecutive years. Its government pipeline has been materially constrained. Longstanding clients have left or are reconsidering mandates. Partner departures can create capital-repayment and retirement obligations. Partner remuneration is falling. The firm is paying for legal investigations, remediation and a governance overhaul. And the Australian partnership has reportedly turned to KPMG International for significant financial support.

Against that background, I think Project Vector is better understood not simply as a response to weak Consulting demand, but as an attempt to rebuild financial resilience after the scandal sharply reduced KPMG’s margin for absorbing that weakness.

And that brings us back to the question of who pays.

KPMG said in June that its failures “do not define the vast majority of our Partners and people”, describing them as professionals who continue to work with integrity.

Two months later, hundreds of those professionals who continued to work with integrity are being sent packing.

And if the experience of PwC is any guide, Project Vector may not represent the final bill for KPMG Australia’s scandal.

It may be the first attempt to create enough financial headroom for costs that have yet to arrive.

This is part of Big4News’ continuing coverage of the KPMG Australia Audit Leak Scandal.

About Claudine Cassar

I’m a corporate anthropologist and former Deloitte equity partner. I sold my technology business to Deloitte in 2016 and led the Malta Consulting team for five years. I am the founder and editor of Big4News, which provides independent, clear analysis of PwC, Deloitte, EY, and KPMG — free from corporate spin.

More about me.

Find me on LinkedIn, X, Instagram, or my author website.

Feel free to reply to this newsletter — I read every reply.

EY Ghana was fined GH¢360,000 (approximately US$32,300) by Ghana’s Cyber Security Authority for providing cybersecurity services without the required licence, before the regulator and the Big Four firm announced later the same day that their regulatory issues had been “satisfactorily resolved”.

The Cyber Security Authority (CSA) announced the administrative penalty on 18 August, saying Ernst & Young Ghana had continued to provide regulated cybersecurity services without a valid Cybersecurity Service Provider licence, including services to owners of Critical Information Infrastructure — systems considered essential to Ghana’s national security or economic and social well-being.

According to the regulator, it had written to EY Ghana on 20 March 2026, directing the firm to submit an application for a licence within 15 days. The CSA subsequently determined that EY had failed to comply with three separate regulatory directives.

The regulator imposed a penalty of 10,000 penalty units — equivalent to GH¢120,000 — for each of the three instances of non-compliance, bringing the total to GH¢360,000. EY Ghana was directed to pay within 14 calendar days, immediately cease providing regulated cybersecurity services without the required licence, confirm in writing that the affected services had stopped, and complete the licensing process.

Significantly, for the professional services firm, the CSA said the restriction extended to Governance, Risk and Compliance (GRC) services, rather than applying only to technical activities such as penetration testing. The CSA’s licensing framework expressly lists cybersecurity Governance, Risk and Compliance alongside vulnerability assessment and penetration testing, digital forensics, managed cybersecurity services and cybersecurity training.

Under section 49 of Ghana’s Cybersecurity Act 2020, a person may not provide a cybersecurity service without obtaining a licence from the CSA. The regulator began implementing its licensing regime for Cybersecurity Service Providers in 2023.

The CSA also stressed that simply applying for a licence did not authorise a provider to operate and said a company’s size, reputation, expertise or clientele did not exempt it from Ghana’s cybersecurity laws.

But the position changed rapidly.

In a joint statement issued later on 18 August, the CSA and EY Ghana said they had held constructive discussions on the licensing requirements, including licence fees and associated administrative requirements.

The parties said they had taken steps to clarify and address the matters and that, as a result, “regulatory issues between the CSA and EY Ghana have been satisfactorily resolved.” Contemporary reporting said the joint statement came only hours after the enforcement action had become public.

The statement did not explain what happened to the GH¢360,000 penalty. It did not say whether the fine had been paid, withdrawn, reduced or otherwise dealt with, nor did it specify whether EY Ghana had by then obtained a Cybersecurity Service Provider licence. It also did not expressly retract the CSA’s earlier findings about unlicensed services and non-compliance with its directives.

The Ghana licensing action is separate from the cybersecurity incidents that have recently brought scrutiny to EY’s own handling of sensitive information.

In July, EY US disclosed that an unauthorised party had accessed a third-party IT service-management platform used by its technology personnel to support teams performing tax-related work. Documents downloaded during the intrusion contained client tax, personal and financial information. The incident has since resulted in a proposed US class action, while the ShinyHunters cyber-extortion group has claimed responsibility for the breach. EY has not publicly confirmed ShinyHunters’ attribution or the group’s wider claims concerning access to additional EY systems.

Those incidents are unrelated to the Ghana licensing action. But together they illustrate how cybersecurity is becoming an increasingly significant issue for the Big Four from two directions: as an operational risk to firms entrusted with large volumes of sensitive client information, and as a growing professional-services business that can itself be subject to specialist regulation and licensing requirements.

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KPMG Australia will stop providing its FairCall whistleblower hotline to organisations it audits, as the firm retreats from a service that has become an uncomfortable focal point in the fallout from its own whistleblower scandal.

The firm says the decision is driven by changes to Australia’s fraud auditing standard rather than the controversy engulfing KPMG. But the timing is notable: KPMG informed the Reserve Bank of Australia that it would not renew its FairCall contract less than a day before it emerged that the central bank was itself reviewing the arrangement following KPMG’s whistleblower failures.

The decision was disclosed in correspondence released by the RBA under freedom of information laws.

In an email sent to the RBA at 6.01pm on 2 June, KPMG said its Ethics and Independence Team had reassessed whether FairCall could continue to be provided to external audit clients following the introduction of a revised ASA 240 fraud auditing standard.

The revised standard, issued by the Auditing and Assurance Standards Board in October 2025, applies to financial reporting periods beginning on or after 15 December 2026. Among other changes, it requires auditors to obtain an understanding of a client’s whistleblower programme and assess its design and effectiveness.

KPMG told the RBA that this meant FairCall could no longer be offered to external audit clients, “primarily due to a self-review threat”.

The issue is that an audit firm operating a client’s whistleblower service could subsequently be required, as auditor, to assess a system in which it was itself involved.

The RBA is directly affected because KPMG performs work on the central bank’s financial statement audit under engagement by the Australian National Audit Office while also operating its FairCall integrity reporting service.

KPMG said it could continue providing FairCall until the RBA contract expires on 31 December 2026 because the new audit requirements would not yet be effective, but could not renew the arrangement beyond that date.

A service under scrutiny

The technical independence issue has emerged at an exceptionally awkward moment for KPMG.

The firm has spent months dealing with the fallout from a whistleblower scandal that exposed failures in its handling of allegations concerning the misuse of confidential client information.

On 29 May, KPMG itself acknowledged that its treatment of the whistleblower and its investigation into the allegations had fallen short. The firm said its initial investigation had not been conducted with the necessary rigour and identified shortcomings in the management of the whistleblower, the investigations and leadership’s response to the allegations.

Chief executive Andrew Yates and national managing partner for audit and assurance Julian McPherson resigned as KPMG apologised “unreservedly” to the whistleblower.

That admission created an obvious reputational problem for FairCall, the whistleblower service KPMG sells to other organisations.

Labor senator Deborah O’Neill subsequently described KPMG continuing to provide corporate whistleblower services as “an untenable proposition”.

Greens senator Barbara Pocock later called for KPMG to be barred from providing whistleblower hotline services while the scandal was investigated. By then, Newcastle Greater Mutual Group and Police Bank were reviewing their FairCall contracts, Western Sydney International Airport was considering its position, Vodafone was seeking assurances and Marinus Link was monitoring developments.

The RBA was also moving away from KPMG. Governor Michele Bullock told a Senate committee on 4 June that the bank was retendering FairCall and said: “I don’t think we’ll be reappointing them to the whistleblower service.” ABC reported that the RBA was distancing itself from KPMG amid the scandal.

Did KPMG jump before it was pushed?

The chronology disclosed by the RBA leaves an obvious question over whether KPMG’s decision also allowed it to get ahead of FairCall relationships that were already becoming vulnerable.

The released RBA emails show that on 29 May, shortly after KPMG publicly admitted its whistleblower failures, an RBA executive asked colleagues whether the development should prompt consideration of the other services KPMG provided, specifically listing “Fair Call” and immigration services.

Four days later, on the evening of 2 June, KPMG sent the RBA its email saying FairCall could no longer be provided to external audit clients. Significantly, the email began “As discussed”, showing there had already been communication between the parties about the issue.

Less than a day later, Capital Brief reported that the RBA was reviewing its FairCall relationship.

When it subsequently reported KPMG’s ASA 240 explanation, Capital Brief noted that the KPMG emails had been sent less than a day before it revealed the RBA’s intention to cease the FairCall contract and said it was unclear whether telephone conversations had occurred beforehand.

The explanation has also attracted scepticism elsewhere. Writing in The Mandarin, Tom Ravlic characterised the standard change as “another excuse” for KPMG to stop selling whistleblower services to audit clients.

There is, however, no evidence in the released documents that the RBA had told KPMG before the 2 June email that it had decided to drop FairCall, or that KPMG invoked ASA 240 in order to pre-empt being removed.

And the independence issue itself is not retrospective justification invented after the scandal. The revised ASA 240 was issued in October 2025, months before KPMG’s whistleblower controversy erupted publicly.

What the documents do show is that two developments were occurring simultaneously: KPMG had concluded that new auditing rules prevented it from continuing FairCall for audit clients, while some of those same relationships were coming under pressure because of the firm’s own treatment of a whistleblower.

KPMG will continue to offer FairCall to organisations it does not audit, according to Capital Brief, so the firm still has to address the wider reputational question that has dogged FairCall since the scandal began: whether organisations should entrust their whistleblowers to a firm that has admitted serious failures in dealing with one of its own.

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EY US is extending the traditional internship model for assurance students, introducing a paid Career Residency that will allow selected interns to continue working with the firm for another eight to 12 months while completing their university studies.

Under the new model, assurance students will still complete EY’s traditional eight-week internship. Selected participants will then be able to continue working part-time for the firm during their senior year, combining EY project work with coaching and skills development.

Business Insider reported that participants will remain employed part-time by EY, work remotely on firm projects and receive personalised coaching while continuing their college classes.

The programme is designed to develop skills including critical thinking, professional judgement, curiosity, AI and technology fluency, collaboration and communication. Business Insider reported that EY also plans to develop professional scepticism through simulations and real-world work.

The rationale goes directly to how AI is changing the traditional audit career model. In a separate explanation of its new early-career pathway, EY says AI is automating routine work and increasing the value of human judgement.

“Imagine starting your career in a world where AI can answer questions in seconds, generate content instantly and automate many of the routine tasks professionals once relied on to gain experience,” EY says.

The change could also affect where graduates enter EY’s career ladder.

Students who successfully complete the residency and subsequently receive a full-time offer will have the potential to join EY US as analysts. EY describes this as an “elevated role” reflecting the additional skills and experience gained during the residency.

Offers will also include a pay increase dependent on factors including performance, business needs and completion of the residency’s criteria and assessments, according to Business Insider.

The programme will initially apply to EY US assurance interns. EY will begin accepting applications for its inaugural Career Residency class this autumn, ahead of the first residents starting in January 2028.

Demand for EY internships appears strong. The firm told Business Insider that it received more than 24,000 applications from CPA-track students over the past year and extended 2,400 internship offers. Applications increased 33% year on year between 2025 and 2026.

Why it matters

The Career Residency addresses an increasingly important question for the audit profession: how do junior auditors acquire experience and professional judgement when AI performs more of the routine work through which previous generations learned the job?

EY is not alone in confronting that problem. In July, KPMG US redesigned the training of nearly 1,000 audit and assurance interns to place greater emphasis on judgement, fraud detection and critical thinking as AI assumes more of the routine testing traditionally performed by junior auditors. The KPMG programme included simulations and problem-solving exercises intended to develop precisely the human capabilities that become more important as repetitive audit work is automated.

The approaches are different. KPMG has redesigned what interns are taught, while EY is going further by changing how long selected interns remain inside the firm and where they may enter the career ladder. But both initiatives point to the same underlying problem: if technology removes some of the routine work on which junior auditors historically cut their teeth, firms need another way to build judgement and experience.

EY’s answer is to give selected students substantially more time inside the firm before they join full-time, while deliberately developing capabilities that become more important as routine tasks are automated — including judgement, critical thinking and professional scepticism.

The residency is part of a broader EY early-career pathway that also includes Skills Arcade, a training programme using simulated workplace scenarios, and 360 Careers, which gives participants broader exposure across areas including audit, tax and technology risk.

The experiment may therefore be worth watching beyond EY. AI is not simply changing how audits are performed; it is beginning to change how auditors are trained in the first place.

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The liquidators of China Evergrande Group are seeking to overturn a HK$1 billion settlement between PwC Hong Kong and Hong Kong’s Securities and Futures Commission (SFC), arguing that the regulator overstepped its powers and failed to take account of the interests of Evergrande and its creditors.

At a judicial review hearing on 19 August, lawyers for the SFC asked Hong Kong’s High Court to dismiss the challenge. The regulator argued that it had broad powers under the Securities and Futures Ordinance to resolve enforcement matters through pre-litigation settlements. Lawyers for the liquidators accused the SFC of circumventing judicial safeguards. Mr Justice Russell Coleman reserved judgment.

The dispute centres on an agreement announced on 23 April 2026, under which PwC Hong Kong agreed to set aside HK$1 billion to compensate eligible independent minority shareholders of Evergrande. The SFC said the money would be allocated through a process overseen by an independent administrator. The agreement resolved the SFC’s case against PwC Hong Kong without the firm admitting liability, provided PwC fulfils its terms.

Lawyers told the court this week that PwC Hong Kong had already placed the HK$1 billion in a separate bank account for the compensation fund.

Evergrande’s liquidators, Tiffany Wong and Eddie Middleton of Alvarez & Marsal, argue that the agreement prejudices the company’s creditors. In their application for judicial review, they said Evergrande’s creditors had been made HK$1 billion worse off, and argued that PwC Hong Kong’s assets were unlikely to be sufficient to meet both the SFC agreement and the liquidators’ separate claims against the firm.

They also argued that the SFC had failed to consider whether its agreement with PwC would unfairly prejudice Evergrande and its creditors. At this week’s hearing, the SFC characterised the dispute as a complaint that minority shareholders had effectively been allowed to “jump the queue” and receive compensation from PwC while its ability to meet claims from Evergrande and its creditors remained uncertain.

The HK$1 billion agreement followed an SFC investigation into Evergrande’s 2019 and 2020 financial reporting. The regulator found that Evergrande had overstated audited revenue by RMB213.9 billion in 2019 and RMB350.2 billion in 2020, largely through premature recognition of revenue from property sales. The SFC also concluded that there had been serious breaches of professional duties by PwC Hong Kong in connection with the audits. PwC did not admit those findings.

The shareholder settlement is separate from a much larger lawsuit being pursued against PwC by Evergrande’s liquidators.

They are seeking RMB57 billion, approximately US$8.4 billion, in total from PwC entities over the audit work. Of that amount, RMB38 billion is being sought from PwC International, PwC Hong Kong and PwC’s mainland China firm together, while a further RMB19 billion is being sought from the Hong Kong and mainland entities. The proceedings allege negligence and misrepresentation.

PwC International has argued that it should not be a party to the case. At a May hearing, its lawyer said the Hong Kong and mainland firms were not its subsidiaries and argued that PwC International had no direct relationship or duty of care to Evergrande. Lawyers for the liquidators argued that the international entity sits at the top of the network and bears responsibility for maintaining standards across member firms.

PwC Hong Kong has also faced separate action from Hong Kong’s Accounting and Financial Reporting Council. On 23 April, the AFRC fined the firm HK$300 million and imposed a six-month practice limitation preventing it from accepting, performing or issuing reports on public-interest-entity audit engagements for new clients. The regulator found misconduct across the Evergrande audits, including failures of professional scepticism and audit independence.

PwC Hong Kong said after the regulatory actions that its work on the Evergrande audits had “fell well below” its expectations and those of its stakeholders, but stressed that it had settled with the SFC without admitting liability or agreeing with the regulator’s conclusions.

The High Court has yet to decide whether the liquidators’ challenge succeeds. For now, the HK$1 billion remains set aside for shareholder compensation while the liquidators continue their separate multibillion-dollar claims against PwC.

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PwC has won what may be the final round of litigation arising from tax advice it gave more than two decades ago.

On 18 June 2026, the Ohio Court of Appeals affirmed summary judgment against Michael Tricarichi, the former owner of West Side Cellular. His fraudulent-inducement claim against PwC was barred by res judicata: the dispute had already been litigated in Nevada and could not be pursued again under a different legal theory.

The Ohio ruling did not examine whether PwC’s original advice was sound. Claims directed at that advice were dismissed in Nevada because they were filed too late.

The court record shows what PwC knew before the transaction went ahead.

The firm described the buyer’s proposed tax strategy as “very aggressive tax-motivated”, expected the Internal Revenue Service to challenge it and did not say that the strategy was more likely than not to succeed. According to the US Tax Court’s account of an internal PwC memorandum, the firm advised that failure of the strategy was not Tricarichi’s concern because the resulting liability would belong to his company.

PwC did not devise the arrangement, and no court has found the firm negligent or fraudulent. Tricarichi was also a sophisticated businessman represented by lawyers and other advisers.

PwC had nevertheless identified the risk. It continued advising on how that risk might be contained.

Source note

The original PwC memorandum does not appear to be publicly available. The quotations in this article come from the Tax Court’s description of the document, reproduced in Appendix E to Tricarichi’s later petition to the US Supreme Court.

The Tax Court said the memorandum went through several drafts and that PwC discussed its conclusions orally with Tricarichi. It also recorded that PwC did not provide him with formal written advice.

What PwC advised

West Side Cellular had received approximately $65 million from the settlement of an antitrust dispute. Tricarichi, its sole shareholder, faced a substantial tax charge if the money was extracted from the company through conventional means.

His brother, James Tricarichi, introduced him to Fortrend, a specialist promoter proposing a transaction intended to reduce that liability. PwC was retained to examine the deal and advise on its tax implications. It did not negotiate the price paid for Tricarichi’s shares.

Tax professionals from several PwC offices worked on the internal memorandum. They considered how the buyer intended to eliminate West Side’s tax liability and whether the transaction had to be reported to the IRS.

PwC concluded that “a position can be taken” that the transaction was not reportable.

The Tax Court treated this as a notably weak formulation. It observed that virtually any position could be taken and contrasted PwC’s wording with the recognised standards used to express confidence that a tax position would survive scrutiny.

The memorandum also considered the buyer’s proposed method of removing West Side’s tax bill. PwC described it as a “very aggressive tax-motivated” strategy and expected the IRS to challenge the deduction on which it depended.

PwC did not indicate that it considered the strategy “more likely than not” to succeed.

The firm had identified a strategy close to the limits of what it believed could be defended under tax law. Its memorandum nevertheless said “this is not … [Tricarichi’s] concern” because any tax resulting from the failure of the strategy would be owed by West Side rather than by Tricarichi personally.

The quoted passages appear in the Tax Court opinion reproduced at Appendix E, page 43a, of the Supreme Court filing.

PwC was not assuring Tricarichi that the tax strategy would work. It was advising that the consequences of failure should remain with West Side after he had sold his shares.

That reasoning depended on treating Tricarichi and the company as separate. He would receive the value held inside West Side. The purchaser would take control of the company and its tax affairs.

If the strategy failed, however, West Side would still owe the tax but would no longer have sufficient assets to pay it.

The courts looked through the sale

The Tax Court and the Ninth Circuit focused on the economic result rather than the formal steps recorded in the sale documents.

The Ninth Circuit upheld the finding that West Side’s cash had effectively been transferred to Tricarichi. It agreed that the transaction “lacked a non-tax business purpose or any economic substance other than the creation of tax benefits.”

Tricarichi had received approximately $35.2 million. The tax, penalties and interest for which he was ultimately held liable totalled approximately $35.1 million.

The corporate liability that PwC believed would remain with West Side followed the company’s value to its former shareholder.

The Tax Court was also highly critical of Tricarichi and his advisers. It found that they had encountered significant warning signs but failed to investigate Fortrend’s plans adequately.

PwC had declined to provide more-likely-than-not assurance. Tricarichi’s lawyers had also tried to include a provision preventing West Side from entering a listed tax transaction after the sale, but Fortrend refused to accept it.

The court concluded that Tricarichi and his advisers had engaged in wilful blindness. When asked about Fortrend’s plan for eliminating the company’s tax liability, Tricarichi said “that was their business”. The passage appears at Appendix E, page 77a, of the Supreme Court filing.

Those findings place substantial responsibility on Tricarichi. He understood that the transaction offered an unusual tax benefit and proceeded despite warnings about the buyer’s plans.

PwC’s contribution was narrower. It did not promote the arrangement or negotiate its commercial terms. It assessed whether the transaction had to be reported, considered the strength of the buyer’s strategy and advised on whether a failed tax liability could reach its client.

For Tricarichi, PwC’s assessment may have supplied the reassurance needed to proceed. A client considering a transaction at the margins of the law may not need a Big Four firm to invent it. The firm’s value lies in assessing whether the arrangement can be defended and whether the risks can be contained.

Why PwC was not held liable

Tricarichi sued PwC in Nevada in 2016, alleging that the firm had negligently advised him to proceed with the 2003 transaction.

The claims directed at PwC’s original advice were dismissed because the Nevada courts found that they had been filed outside the applicable limitation period. There was no trial examining whether the firm’s 2003 work met the required professional standard.

Tricarichi also brought claims based on PwC’s alleged conduct from 2008 onwards. Those claims did proceed to trial. The court found that he had failed to establish duty, breach, causation or damages, and the Nevada Supreme Court upheld the material rulings in 2025.

The Ohio proceedings represented another attempt to pursue the dispute. Tricarichi alleged fraudulent inducement, including claims that PwC had failed to disclose evidence concerning its treatment of similar transactions.

The Ohio Court of Appeals held that he could not reopen matters arising from the same transaction after the Nevada litigation. It affirmed summary judgment for PwC on the basis of res judicata.

PwC has therefore prevailed throughout the litigation. The later claims failed following a trial, while the claim attacking the original advice was dismissed as time-barred.

The courts established that Tricarichi could no longer recover from PwC. They did not decide that the firm was right to continue advising around a transaction after describing its central strategy as very aggressive and likely to be challenged.

The UK debate over aggressive tax advice

The same tension between legal supportability and professional responsibility emerged in the UK a decade later.

In January 2013, the heads of tax at PwC, Deloitte, EY and KPMG appeared before the House of Commons Public Accounts Committee to answer questions about their firms’ role in tax avoidance.

Austin Mitchell MP challenged the emphasis placed on whether tax advice was legally supportable.

“Advice is legal until it is struck down by a court,” he said. “Many of the schemes you are selling are potentially illegal because they could be struck down.”

Kevin Nicholson, then PwC UK’s head of tax, replied that the firm operated under a code of conduct and that its advice had to be “supportable in law”.

Committee chair Margaret Hodge then said someone working at PwC had told her the firm would approve a tax product where there was a “25% chance—a one-in-four chance—of it being upheld.”

Nicholson rejected the claim.

“I don’t recognise that statement,” he said. He also denied that PwC produced, promoted or mass-marketed tax products.

Nicholson said the firm’s advice had to be supportable in law, fully disclosed and based on the client’s individual circumstances. PwC also had to explain the tax, commercial and reputational risks.

The 25% figure was an allegation attributed to an unnamed PwC employee. It was not an admitted policy or a finding by the committee, and there is no evidence that PwC applied a comparable percentage to the Tricarichi transaction.

The hearing exposed a basic disagreement. PwC defined its responsibilities largely through legal supportability, disclosure and an explanation of risk. Members of the committee questioned whether that standard allowed firms to facilitate arrangements that might comply with a technical reading of the rules while defeating their intended purpose.

Beyond legal supportability

Tax advisers routinely help clients claim legitimate reliefs, arrange genuine commercial activities efficiently and challenge doubtful interpretations advanced by tax authorities. A disputed position is not necessarily an improper one.

PwC’s own description placed the Tricarichi transaction in a different category. The firm expected the central strategy to be challenged, labelled it very aggressive and declined to say that it was more likely than not to work.

It continued advising because it believed the resulting tax liability would remain with West Side.

There is no suggestion that PwC regarded the transaction as criminal. In tax practice, “very aggressive” generally describes a position near the limits of what an adviser believes can still be defended.

PwC did not recommend stepping away from the transaction. It focused on whether the tax bill could be kept separate from the client who would receive the company’s value.

That may have satisfied the firm’s test of whether a legal position could be supported. The courts later held Tricarichi liable as a transferee for West Side’s unpaid tax liability.

Tricarichi can no longer recover from PwC through these proceedings. The Tax Court’s account still shows a firm advising around a strategy it expected the IRS to challenge because it believed the resulting tax bill would remain with the company.

The courts later held that the liability followed the company’s value to Tricarichi.

This article is part of the Big4News Investigations & Analysis series, which examines the structural forces shaping Deloitte, PwC, EY and KPMG, drawing on documented evidence, regulatory records and case studies to analyse audit quality, governance, incentives, culture and accountability.

About Claudine Cassar

I’m a corporate anthropologist and former Deloitte equity partner. I sold my technology business to Deloitte in 2016 and led the Malta Consulting team for five years. I am the founder and editor of Big4News, which provides independent, clear analysis of PwC, Deloitte, EY, and KPMG — free from corporate spin.

More about me.

Find me on LinkedIn, X, Instagram, or my author website.

Feel free to reply to this newsletter — I read every reply.

The reputation of the Big Four in Australia has taken a beating in recent years, with two scandals involving the misuse of confidential information dominating the news for months and raising questions about whether the country’s largest accounting firms are adequately regulated.

First came PwC

The scandal centred on former PwC tax partner Peter-John Collins, who participated in confidential Treasury consultations on new measures designed to combat multinational tax avoidance. Despite signing confidentiality agreements, Collins shared confidential Treasury information with other people inside the firm.

Parliamentary investigations subsequently found that information was circulated within the firm’s international network and used to help PwC pursue business from companies affected by the measures.

The scandal engulfed PwC Australia during 2023, triggering parliamentary inquiries, leadership departures and the sale of its government consulting business. More importantly for the wider profession, it exposed an uncomfortable regulatory question: what happens when misconduct by regulated practitioners also exposes firm-wide governance and commercial incentives that existing individual and professional regulatory regimes do not fully reach?

Three years later, KPMG Australia provided another test

The current KPMG scandal began with allegations from an internal whistleblower that confidential audit-client information had been improperly shared inside the firm. The core allegation was that confidential Lendlease board material obtained through KPMG’s audit relationship was used in connection with pitches for the Westpac and Dexus audits. Parliament has since heard of a separate case involving confidential Optus information allegedly being shared with a team pursuing Telstra’s audit.

The controversy widened because of KPMG’s response to the whistleblower. The firm has acknowledged that its initial investigation was not conducted with the necessary rigour, while parliamentary hearings have examined both the information-sharing and the treatment of the person who raised concerns.

Chief executive Andrew Yates, audit head Julian McPherson, chairman Martin Sheppard and other senior figures subsequently resigned or relinquished leadership roles.

Together, PwC and KPMG have pushed an issue that once sounded largely theoretical to the centre of Australia’s debate over professional-services regulation: can conflicts and misconduct inside huge multidisciplinary partnerships be controlled through professional rules and internal governance, or does the structure of the firms themselves need to change?

The reform process started with PwC — then lost momentum

The current Treasury review did not begin with KPMG. Its origins lie in the PwC tax scandal three years earlier.

On 6 August 2023, at the height of the PwC controversy, the Australian government announced a package of measures that included a Treasury examination of the regulation of consulting, accounting and auditing firms to determine whether reforms were needed. The government said the PwC scandal had exposed shortcomings in the regulatory framework and raised questions about governance, transparency, executive responsibility and conflicts of interest at large professional-services firms.

Treasury followed this in May 2024 with a consultation paper explicitly entitled Response to PwC – regulation of accounting, auditing and consulting firms in Australia. That consultation examined the adequacy of governance requirements for large partnerships, professional standards and conflict-of-interest rules, transparency, regulatory enforcement, whistleblower protection and competition and resilience in the audit market. It ran from 3 May until 28 June 2024.

Public-facing momentum then faded, although Treasury continued working on the issue. On 27 March 2026, Treasury published consultation-outcome material through its Freedom of Information disclosure log: “Outcomes of consultation – Regulation of accounting, auditing and consulting firms in Australia”.

Three days earlier, on 24 March, Senator Deborah O'Neill had aired the KPMG whistleblower's allegations in the Senate. Over the following months the KPMG scandal became a storm of allegations, counter-allegations and headlines — and the questions first raised after PwC moved back up the political agenda. On 5 June, Assistant Treasurer and Minister for Financial Services Daniel Mulino made the connection explicit in an interview with ABC Radio National. Asked whether the regulatory framework needed to change, he said:

“I think that there was already a process under way but the allegations against KPMG have just heightened the urgency of this.”

Mulino specifically identified the interaction between ASIC’s Corporations Act powers and the partnership structures of the accounting firms as one of the matters the government needed to examine.

Less than a month later, the reform process was visibly moving again. On 1 July, Mulino and Senator Deborah O’Neill publicly launched the new options paper, putting measures including operational separation, structural separation, a lower partnership cap and stronger ASIC powers on the table. Mulino said the conduct exposed at PwC and KPMG meant the existing position was “simply not good enough”.

Treasury’s July 2026 options paper itself makes the continuity clear. It traces the review back to the government’s 6 August 2023 response to PwC and says that feedback from the 2024 consultation and “recent events” had confirmed gaps involving audit independence and ethics, audit-firm culture and values, firm-wide monitoring and internal controls, and the prioritisation of audit quality.

The second consultation moved beyond diagnosing the problem. Treasury put 17 possible reforms on the table, ranging from stronger licensing and enforcement powers to measures capable of fundamentally changing the structure of the Big Four.

The gap in ASIC’s powers

The Australian Securities and Investments Commission (ASIC) regulates corporate auditing. It registers individual Registered Company Auditors and Authorised Audit Companies, administers legally enforceable auditor-independence and audit-quality requirements, conducts surveillance and investigations, and can take enforcement action where auditors breach provisions within its jurisdiction.

The regulator confirmed it has formal investigations under way into the conduct of individual registered company auditors at KPMG, relating to the potential misuse of confidential information from Lendlease and the alleged misuse of confidential information from Optus.

However, its jurisdiction over unincorporated audit partnerships as entities is extremely limited. ASIC's enforceable audit powers are concentrated on individual Registered Company Auditors and Authorised Audit Companies, although some narrow statutory obligations also apply to audit partnerships.

That creates an important lacuna. An audit is affected by decisions made far above the individual engagement partner: how many people the firm assigns to audits, how partners are remunerated, how staff are trained, how conflicts are identified, how confidential information is controlled and what culture senior management creates around commercial performance and audit quality.

Treasury’s 2026 options paper says that, under the current framework, audit partnerships cannot be meaningfully sanctioned for many firm-level decisions affecting audit quality. Although some narrow obligations apply to partnerships, the legal accountability for audit performance remains focused heavily on the lead auditor. Treasury noted that this means key decision-makers who influence firm-wide quality and independence often sit outside the direct accountability applying to the individual auditor.

ASIC Chair Sarah Court put the problem more starkly during the parliamentary examination of KPMG in June. She told the committee that ASIC’s jurisdiction over audit firms, as opposed to individual auditors, was “extremely limited” and said the Corporations Act should extend further into large partnerships.

A more recent development illustrates the complexity of that jurisdictional gap. According to The Australian, ASIC is now probing various KPMG entities for alleged breaches of the Corporations Act’s statutory whistleblower protections, a development revealed in answers the regulator provided to questions on notice from Senator Barbara Pocock. This may give ASIC a different route into the affair through any KPMG entities that fall within the whistleblower regime, even though KPMG’s partnership itself falls largely outside ASIC’s entity-level jurisdiction.

The regulatory question Treasury is now confronting is therefore not simply whether auditors need tougher rules. It is whether regulators need greater authority over the firms that employ them and make the decisions that shape their work.

What Treasury is considering

Treasury’s paper contains 17 options, ranging from relatively incremental changes to potentially fundamental reforms of the Big Four business model. They include registering audit firms themselves rather than relying primarily on the regulation of individual auditors; imposing stronger governance requirements and increasing regulatory surveillance and transparency; reducing the maximum size of accounting partnerships; increasing penalties; and measures intended to make the audit market more competitive.

The most consequential options concern the relationship between audit and non-audit services such as consulting. Treasury is considering forms of operational separation as well as a more radical model under which entities could obtain audits only from firms that do not provide non-audit services, subject to possible limited exceptions where those services are required for the audit.

That is the option the Australia Institute wants the government to pursue.

Australia Institute: break them up

The Australia Institute has come out in favour of the most interventionist end of that spectrum.

In a submission made public on 18 August, the Canberra-based think tank argues that the repeated scandals show that conflicts cannot be adequately managed through ethical rules, internal controls or operational separation.

Its principal recommendation is mandatory structural separation of audit and non-audit services. Audit and consulting would become separate entities with no financial relationship between them.

The Institute argues that merely prohibiting a firm from providing consulting services to its own audit client would leave other conflicts untouched. A firm auditing one company, for example, could still possess commercially sensitive information relevant to consulting work or pitches involving its competitors, suppliers or customers.

It is equally sceptical of operational separation. Although ring-fencing audit could create separate governance and remuneration arrangements, the Institute argues that both sides would still belong to the same commercial organisation and remain exposed to the same broader incentives and culture.

KPMG’s current scandal features prominently in that argument. The submission contends that the alleged movement of confidential information between teams demonstrates the weakness of relying principally on internal safeguards to manage information conflicts inside large multidisciplinary organisations.

“Conflicts of interest are baked into the big four by virtue of their structure,” said Josh Bornstein, the Australia Institute’s director of corporate regulation. He argues that a structural problem therefore requires a structural response.

Turn the partnerships into companies

In addition to breaking up the firms, the Institute is also recommending that major audit and accounting firms be required to incorporate, bringing them under the Corporations Act. If mandatory incorporation is not possible, it argues that major audit and accounting firms should instead be regulated in a similar way to corporations under the Corporations Act.

The proposal is intended to address precisely the regulatory gap identified by ASIC and Treasury: large accounting partnerships increasingly have chief executives, boards and sophisticated management structures resembling those of corporations, while their enterprise-level governance is not subject to the same statutory framework.

The Institute also points to whistleblower protection. A partnership is not a “regulated entity” for the purposes of the Corporations Act whistleblower regime, leaving significant gaps in statutory protection for people working within partnership structures — an issue Treasury itself identified in its 2024 review.

By contrast, the Institute is doubtful that simply reducing the number of partners would solve the problem. It argues that firms could respond to a statutory partnership ceiling by creating more senior salaried, managing-director or partner-like positions without materially reducing their overall scale or complexity.

Its three recommendations are therefore straightforward:

1. Mandate structural separation of audit and non-audit businesses.

2. Require major audit and accounting firms to incorporate and bring them under the Corporations Act.

3. If compulsory incorporation is impractical, regulate major firms in a similar way to corporations under the Corporations Act.

What happens next

Treasury’s consultation closed on 12 August 2026. The Australia Institute made its submission public on 18 August; its publication date does not establish when it was lodged with Treasury. The government has not yet selected any of the 17 options, and Treasury explicitly cautioned that their inclusion in the paper did not amount to government endorsement.

Treasury will now consider the submissions before providing further advice to government. There is no commitment that all — or any — of the more radical proposals will proceed. Mulino has said the government is approaching the consultation with an open mind, including on structural separation, but there is no indication yet which — if any — of the more radical options it will ultimately pursue.

Pressure on the existing model is also coming from outside the government’s reform process. On 7 August, the NSW Supreme Court granted former KPMG partner Brendan Lyon a protective costs order allowing his public-interest challenge to the CA ANZ Professional Standards Scheme to proceed with his exposure to adverse costs capped at $25,000. Lyon is challenging the validity of the scheme, including whether its liability caps can lawfully extend to non-accounting services provided within Big Four firms. The Court has not yet ruled on the merits of that challenge.

Together, these developments show that scrutiny of the Big Four in Australia is moving beyond individual scandals and towards the structures that govern how the firms operate, are regulated and are held liable.

This is part of Big4News’ continuing coverage of the KPMG Australia Audit Leak Scandal.

About Claudine Cassar

I’m a corporate anthropologist and former Deloitte equity partner. I sold my technology business to Deloitte in 2016 and led the Malta Consulting team for five years. I am the founder and editor of Big4News, which provides independent, clear analysis of PwC, Deloitte, EY, and KPMG — free from corporate spin.

More about me.

Find me on LinkedIn, X, Instagram, or my author website.

Feel free to reply to this newsletter — I read every reply.

The UK Cabinet Office has awarded KPMG and EY civil service training contracts with a combined maximum value of £456 million including VAT, even as the government moves towards an in-house model intended to reduce reliance on external training providers. KPMG’s contract is worth up to £319.2 million, while EY’s is worth up to £136.8 million.

The contracts will run from 31 August 2026 to 31 March 2028 and can be used by government departments, executive agencies and other central government bodies. The procurement notice says the training will cover areas including digital and artificial intelligence, leadership and management. The stated values are maximum estimates: the Cabinet Office has given no guarantee over how much work will ultimately be ordered under either contract.

Both contracts were made as direct awards. KPMG and EY already provide civil service learning services under existing arrangements that were due to expire in January 2027. The Cabinet Office said the new contracts will replace those agreements and support a faster transition to the government’s planned National School of Government and Public Services. Changing suppliers during the transition would have been disruptive, according to the department.

The government announced the new National School in January, saying it would bring more civil service training in-house, align skills development with priorities such as AI and reduce spending on external providers over time. The Cabinet Office says ministers have since decided to accelerate the transition in order to improve value for money sooner.

The awards come as the government is also seeking to reduce its wider reliance on consultants. A Cabinet Office spokesperson told Civil Service World that the KPMG and EY contracts were for training services rather than consultancy, and said consultancy costs had fallen by more than £600 million last year to their lowest level in five years. The government remains committed to halving consultancy spending.

That distinction comes amid continuing scrutiny of how government measures its use of external advisers. In March, the House of Commons Public Accounts Committee said the Cabinet Office was unable to demonstrate that its target to halve consultancy spending was an effective way of reducing expenditure on external providers, and raised concerns over the reliability and consistency of government consultancy-spending data.

The new training arrangements are unusually large by Big Four public-sector contracting standards. According to Tussell data reported by the Financial Times, the £456 million ceiling makes the KPMG-EY award the largest single contract awarded to Big Four firms since Tussell’s records began in 2012.

Big Four firms have been awarded contracts with a combined maximum value of £1.25 billion so far in 2026, already exceeding the £1.06 billion awarded during the whole of 2025. Those figures represent contract awards rather than necessarily the amount ultimately spent.

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Mikela Fenech Pace is an HR consultant, executive and team coach who spent three and a half years as HR Manager at Deloitte Malta. During her time at Deloitte, she worked on staff retention, recruitment, training and career development, wellbeing and mental-health initiatives, as well as the restructuring of the firm’s HR function. She now advises organisations and leaders on culture, employee engagement, organisational transformation and team effectiveness.

Full bio at the end of the article.

The Interview

You have worked across very different organisations and now advise leaders and teams. What does a genuinely healthy corporate culture look like to you in practice?

To me, a healthy culture is first and foremost a safe culture — but safety should not be confused with comfort or the absence of accountability. It is a workplace where people can ask questions, challenge respectfully, admit mistakes and receive honest feedback without fear of humiliation or retaliation.

Expectations are clear, objectives are communicated and people are trusted to deliver without being unnecessarily controlled. Success is celebrated, while mistakes are examined for learning rather than used to assign blame. People know where they stand, what is expected of them and how their contribution connects to the wider purpose of the organisation.

Culture is not created through one initiative or a set of values displayed on a wall. It is built through hundreds of small, repeated behaviours — how leaders respond to bad news, whose voice is heard in meetings, whether difficult feedback is delivered with respect, and whether the organisation’s actions match its words.

Healthy cultures are not conflict-free. They are cultures in which disagreement can be handled constructively, accountability is fair and people retain a genuine sense of belonging.

During your career, you have been responsible for introducing initiatives around wellbeing, mental health and staff retention. What have those experiences taught you about what employers can do to make people genuinely feel supported and valued?

The workplace has become increasingly complex. The old idea that people should leave their personal lives at the door was never entirely realistic, but it is even less so today. Employees are navigating financial pressure, caring responsibilities, mental-health challenges and, in some cases, domestic abuse or other serious personal circumstances. Workplaces are also more culturally and generationally diverse, so people may experience and express support very differently.

This raises an important question — where does an employer’s responsibility begin and end? An organisation cannot solve every problem in an employee’s life, nor should it attempt to do so. It can, however, create the conditions in which someone feels safe enough to ask for help and is directed towards appropriate support.

Wellbeing initiatives have value, but they cannot compensate for unhealthy workloads, poor management or a culture in which people are afraid to speak. Employees feel valued when they are listened to, treated fairly, given clarity and supported by managers who notice when something has changed.

A strong HR function is vital, particularly when it has credibility at board level while remaining connected to employees on the ground. But HR cannot own wellbeing or culture alone. Leaders set the tone, managers shape the daily experience, and HR must be willing to advise, challenge and, where necessary, hold the organisation to account. Support becomes credible when responsibility is shared and words are consistently matched by action.

When you see burnout in the workplace, what are usually the underlying causes? How much comes down to individual resilience, and how much to the way work itself is organised?

We need to be careful not to use “burnout” as a catch-all term for every period of pressure or tiredness. Work will sometimes be demanding, particularly in professional services. The concern arises when intense pressure becomes chronic, recovery becomes impossible and the individual feels they have little control or support.

Burnout is rarely explained by one factor. Excessive workload matters, but so do unpredictability, conflicting priorities, limited autonomy, poor management, insufficient recognition and a perceived lack of fairness. Even highly resilient people can struggle when they remain in a badly designed system for long enough.

Different people also have different capacities at different stages of their lives. That is not simply a generational issue or a question of toughness. Health, caring responsibilities, experience, personal circumstances and the level of control someone has over their work will all influence how pressure is experienced.

The answer is not to remove every demanding situation. It is to build sufficient elasticity into the workplace: clearer priorities, realistic resourcing, periods of recovery, sensible flexibility and honest conversations about capacity before performance begins to deteriorate.

Managers are critical here because they are closest to the everyday experience of their teams. They should be able to notice changes in behaviour, energy, quality or engagement and start an appropriate conversation early. Unfortunately, many managers are promoted for technical excellence without ever being trained to recognise or respond to these signs. That is an organisational capability gap, not merely an individual resilience problem.

Do professional-services firms sometimes confuse long hours with commitment? If someone consistently delivers excellent work but does not work late into the night, can that affect how they are viewed when it comes to career progression?

Historically, professional-services firms have sometimes treated visibility and long hours as evidence of ambition and commitment. That is changing, but proximity bias and presenteeism have not disappeared completely.

Long hours may occasionally be necessary, particularly around deadlines, but they are not in themselves evidence of high performance. In fact, consistently excessive hours may indicate unrealistic resourcing, weak prioritisation or a model that depends too heavily on individual sacrifice. Sustainable high performance should be judged through the quality of the work, client impact, reliability, collaboration, judgement and the person’s contribution to developing others.

Someone who consistently delivers excellent work should not have to perform exhaustion to demonstrate commitment. The risk arises when progression decisions rely on impressions — who is always visible, who answers messages late at night or who appears constantly available — rather than clearly defined evidence.

This is why transparent competency frameworks, regular feedback and properly calibrated promotion discussions matter. At every career stage, employees should understand what the next level requires and how their performance will be assessed. When expectations remain unwritten, traditional assumptions about commitment can quietly become criteria for progression.

Professional-services firms rely heavily on junior staff to deliver client work. What challenges can that model create when it comes to managing workload, development and wellbeing?

The professional-services model can offer exceptional early-career development. Junior employees gain exposure to varied clients, demanding assignments and levels of responsibility that may take much longer to acquire elsewhere. When properly supported, that experience can build confidence, judgement and strong professional discipline.

The same model can also create pressure. Junior staff may be balancing client expectations, billable-hour targets, examinations and several managers who all believe their assignment is the priority. Busy periods can become less of a temporary peak and more of a continuous cycle. Development then risks becoming something people are expected to absorb through pressure rather than something deliberately supported through coaching, feedback and protected learning time.

Many younger professionals remain ambitious and prepared to work hard, but appear more willing to question whether long-term exhaustion is a necessary price for professional development. Firms should not interpret that automatically as a lack of commitment. It is an invitation to examine whether the model remains fit for purpose.

AI creates an important opportunity. If technology makes parts of the work faster and more accurate, the benefit should not be measured only through higher margins or increased volume. Some of that efficiency should be reinvested in better learning, more predictable workloads and time for recovery. Otherwise, we risk using technology simply to accelerate an already pressurised system.

How firms distribute the gains created by AI will become a significant test of their culture.

High staff turnover is often treated as an unavoidable feature of the Big Four model. Can firms become so accustomed to continually recruiting and replacing junior staff that they stop questioning why people are leaving?

Some turnover is built into the professional-services model. Firms recruit large graduate cohorts, while the number of senior and partnership positions naturally narrows at each stage. Many people also join knowing that the experience will provide an excellent professional foundation before they move into industry or another career path.

That does not mean all turnover should be treated as inevitable or harmless. The important distinction is between expected movement and regrettable turnover: losing people the firm wanted and needed to retain, particularly because of avoidable problems involving workload, management, fairness or progression.

The reputation of a Big Four firm can itself become a blind spot. When an organisation knows that people will continue to apply and that its alumni generally leave with strong career prospects, it may feel less urgency to question the employee experience. Continual recruitment can mask the organisational cost of continually losing knowledge, relationships and future leaders.

Exit interviews are useful, but only if the data leads to action. Firms should examine patterns by business area, manager, grade, demographic group and stage of tenure. They should also use stay interviews, asking good people what keeps them there and what might cause them to leave before a resignation arrives.

Attrition should not be viewed as an HR statistic alone. It is a leadership, succession and business-performance measure. The question is not simply, “How many people left?” It is, “Who are we losing, why are we losing them, and what does that tell us about the environment we have created?”

What happens to career progression in professional services when people become parents? Do firms still operate, perhaps implicitly, on the assumption that the ideal future partner is someone whose work can take precedence over almost everything else?

Many professional-services firms now have strong parental policies and more flexible working arrangements. The more difficult question is what happens informally after someone becomes a parent.

Career progression may be supported on paper while the unwritten model of the ideal future partner still favours uninterrupted availability, mobility and the ability to prioritise work at short notice. This can affect mothers particularly strongly, but it can also affect fathers and other carers who want to play an active role at home.

The issue is not simply the period of parental leave. Pregnancy, recovery, disrupted sleep, childcare responsibilities and the mental load associated with parenting can all change what an employee needs from the workplace. Firms must be careful that flexibility does not quietly lead to fewer opportunities, less visible assignments or assumptions about a person’s ambition.

We should also question the belief that time away from the office represents an absence of growth. Parenting can strengthen prioritisation, negotiation, empathy, resilience and the ability to make decisions under pressure. These capabilities are highly relevant to leadership, even if they do not appear on a traditional technical career framework.

Employers cannot solve the issue alone, and support should not come at the expense of colleagues who do not have children. The objective is fairness: workloads, flexibility and progression criteria that recognise different lives without creating hidden penalties or unfairly transferring the burden to others.

If you were advising an employer that genuinely wanted to build a healthier workplace without sacrificing high performance, where would you tell them to start?

I would tell them to start at the top — and to begin by looking honestly at what leaders currently model, reward and tolerate.

Culture is shaped by everyday leadership behaviour: the language used under pressure, how meetings are run, whether people can disagree, how bad news is received, and whether senior people respect the boundaries they encourage others to maintain. Employees will follow what leaders do far more readily than what an organisation says.

The next step is to understand the current reality. Listen to employees, examine workload and turnover data, and identify where the experience differs across teams. Often the organisation does not have one culture; it has several microcultures created by individual managers.

I would then invest in those managers. They need the skills to set clear expectations, distribute work fairly, give honest feedback, notice changes in their people and hold both performance and wellbeing in the same conversation.

A healthy workplace is not one that lowers standards. It is one that makes high performance clearer, fairer and more sustainable. The real objective is not to protect people from every period of pressure, but to create an organisation in which pressure has a purpose, support is available and recovery is possible.

Who is Mikela Fenech Pace?

Mikela Fenech Pace is an HR consultant, executive coach and team coach based in Malta. She works with organisations and leaders on organisational transformation, corporate culture, employee engagement, leadership development and team effectiveness.

From 2014 to 2018, she served as HR Manager at Deloitte Malta. Her responsibilities included restructuring and rebuilding the HR department, developing staff-retention and student-recruitment strategies, overseeing training and career-development initiatives, and introducing staff wellbeing and mental-health programmes. She was also involved in the integration of 50 employees following an acquisition and brought together HR representatives from the Big Four firms with Malta’s Ministry of Education and Employment and other stakeholders to work on issues affecting the accountancy profession.

She subsequently served as Human Resources Manager at Alf. Mizzi & Sons Marketing Group, where her work included HR strategy, performance management, recruitment and retention, employer branding, digitisation of HR services, and wellbeing and mental-health programmes. Since 2020, she has worked independently through Upstream, advising businesses on people and organisational issues and providing executive and team coaching.

Earlier in her career, Fenech Pace held senior roles in Malta’s public service and diplomatic corps. She headed the Strategic Policy Secretariat within the Office of the Prime Minister, worked on Malta’s response to the 2011 Libya crisis, headed the Sanctions Unit at the Ministry of Foreign Affairs, and previously served in diplomatic roles including at Malta’s Embassy in Rome. She has also lectured at the University of Malta on conflict resolution and peace studies.

This article is part of the Big4News Expert Voices Series

About Claudine Cassar

I’m a corporate anthropologist and former Deloitte equity partner. I sold my technology business to Deloitte in 2016 and led the Malta Consulting team for five years. I am the founder and editor of Big4News, which provides independent, clear analysis of PwC, Deloitte, EY, and KPMG — free from corporate spin.

More about me.

Find me on LinkedIn, X, Instagram, or my author website.

Feel free to reply to this newsletter — I read every reply.

PwC UK has moved a number of equity partners into managing director roles as the Big Four firm continues to tighten control over the size of its partnership and protect profitability.

Financial News reported on 14 August that around half a dozen equity partners had been demoted to managing directors since the new grade was introduced in late 2024. Some partners reportedly chose to leave PwC rather than accept the change in status.

The firm had originally created the managing director grade as an alternative career path for senior employees who would not become equity partners, rather than as a destination for people leaving the partnership.

When the role was announced in October 2024, PwC senior partner Marco Amitrano told the Financial Times:

Our new MD grade will give us more flexibility to recruit and retain key talent. The grade is distinct to equity partner and opens up a new career path for high performers. It will create opportunity and give us greater agility in the market.

PwC senior partner Marco Amitrano

Its use for former equity partners therefore marks a significant development in how PwC manages its most senior ranks. Traditionally, partners who no longer met performance expectations might have been encouraged to retire or leave the firm. The managing director grade now provides another option: PwC can retain their expertise while removing them from the pool of partners entitled to share in the firm’s profits.

According to Financial News, most of those affected were in consulting and deals, with one former partner saying the changes targeted roles perceived as being more focused on delivery than generating new business. The moves come during a prolonged slowdown in consulting demand that has led Big Four firms to cut costs, restrict partner promotions and place greater emphasis on the commercial performance of senior staff.

PwC’s partnership has already contracted considerably. Financial News cited Companies House records showing 976 partners, compared with 1,057 in July 2023. At the same time, PwC has kept new admissions relatively tight: it promoted 47 directors to partner in July 2026, up from 40 a year earlier but still well below earlier promotion rounds. PwC confirmed the 47 appointments when it announced its latest partner class.

The financial incentive for maintaining a smaller equity partnership is clear. PwC’s average distributable profit per UK partner was £865,000 in the year to June 2025, while partners are expected to receive more than £900,000 on average for the year to June 2026 following further cost reductions. PwC’s workforce had already fallen from around 36,000 to 33,700 during the previous financial year as revenue growth slowed sharply.

PwC is not alone. KPMG and EY have also begun moving some UK equity partners into salaried partner positions, reflecting a wider shift away from the idea that reaching equity partnership represents a permanent destination.

The Financial Times also reported in April that KPMG had told some equity partners in recent years that they would be “retired” from the equity partnership and offered salaried-partner roles instead. Some chose to leave rather than accept the change. EY has also moved a small number of equity partners into salaried roles since introducing its salaried-partner tier in 2022.

The three firms are therefore using slightly different structures to achieve a similar result: narrowing the group entitled to share in partnership profits while retaining some of the senior professionals removed from equity.

Taken together, the changes suggest that equity partnership at the Big Four is becoming less of a permanent destination and more of a status that firms are prepared to revisit in response to performance and profitability pressures.

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KPMG US has completed its audit of Tether International, S.A. de C.V.’s financial statements for the year ended 31 December 2025 in accordance with AICPA standards. A spokesperson from the firm said that it had issued an unqualified opinion, but declined to comment further, citing client confidentiality.

Tether said the audit covered the full balance sheet, income statement, statement of changes in equity and cash flows, as well as transactions, systems, ownership records, valuations, counterparties and supporting evidence. Reportedly, KPMG also physically counted and inspected Tether’s individual gold bars.

An unqualified opinion means that KPMG has concluded that the financial statements present fairly, in all material respects, Tether International’s financial position at the end of 2025 and its results and cash flows for the year in accordance with US generally accepted accounting principles.

But there is a significant limitation to the transparency provided to the public: neither the audited financial statements nor KPMG’s audit report has been published.

This appears to contradict the stance taken by Tether in March 2026 that its audit would provide “full visibility” into the strength and positioning of its reserves — independent scrutiny by an auditor and transparency to the market are not the same thing.

Instead of publishing the financial statements and audit report, Tether has disclosed selected results, announcing that the audited accounts show that reserves exceeded liabilities by $6.814 billion at 31 December 2025.

The audit marks a significant change from Tether’s previous assurance arrangements. For years, the company had faced questions over the absence of a full audit and instead relied on attestations of its reserves, most recently performed by BDO.

In 2021, the US Commodity Futures Trading Commission fined Tether $41 million after finding that it had made misleading statements about the backing of USDT during an earlier period and had falsely represented that it would undergo routine professional audits even though its reserves had not been audited.

The company has said it now intends to undergo a full financial statement audit annually, while continuing to publish its quarterly reserve attestations.

The completion of the audit therefore answers one of the longest-running questions surrounding Tether: whether it could obtain a full financial statement audit from a Big Four firm. What remains unavailable to USDT holders and the wider public are the documents themselves — the financial statements, their accompanying disclosures and KPMG’s audit report.

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Macquarie Group could revisit its decision to appoint KPMG as its next auditor as the fallout from the firm’s Australian confidentiality scandal begins to threaten one of its biggest audit wins.

Macquarie chair Glenn Stevens told a parliamentary inquiry on Friday that the group had asked KPMG to establish whether confidential information belonging to other audit clients was used in pursuit of the Macquarie tender. He said there was still time for Macquarie to “revisit” its decision to appoint the firm, although a final decision would need to be made relatively soon.

The stakes are substantial. KPMG’s external audit mandate with Macquarie is worth about A$75 million a year, according to the Australian Financial Review.

KPMG was selected in November 2025 to replace PwC following a competitive tender. Macquarie’s board said at the time that, after an 18-month transition period to allow KPMG to meet auditor independence requirements, it intended to recommend KPMG’s appointment to shareholders at the 2027 annual general meeting. The firm is due to become auditor for the financial year beginning on 1 April 2027 — Macquarie’s FY28 — subject to regulatory consents and shareholder approval.

Macquarie wants proof its tender was clean

The critical issue for Macquarie is no longer simply whether KPMG can recover from the scandal. It is whether the conduct uncovered elsewhere in the firm touched the process through which KPMG won Macquarie itself.

“In a nutshell, what we need clarity on: was there any misuse, not only of our information, but anybody else’s, in the pursuit of the Macquarie tender in particular?”

Macquarie chair Glenn Stevens

Macquarie has asked for the matter to be examined by law firm Allens under a scope agreed with Macquarie. Chief financial officer Frank Kwok told the committee that Allens was reviewing more than 130,000 electronic communications as part of the exercise, which is intended to determine whether there was any impropriety in KPMG’s pursuit of the mandate.

The committee questioned the arrangement because Allens also acts for KPMG. Macquarie defended the process, saying that it had agreed the scope directly with the law firm and was satisfied that the review was sufficiently broad.

Macquarie is separately assessing whether KPMG continues to have the capability and capacity to conduct its audit following the upheaval at the firm. KPMG Australia’s chief executive, national audit leader and chairman have all left their positions since the scandal escalated.

The Hinchliffe connection

The audit selection process was already attracting scrutiny because Macquarie’s Board Audit Committee chair, Michelle Hinchliffe, spent 37 years at KPMG before retiring from the firm in February 2022 and joining the Macquarie board. Her KPMG career included serving as head of financial services in Australia, head of audit in the UK and chair of KPMG UK’s audit practice.

Hinchliffe was involved in parts of Macquarie’s audit tender process. At Macquarie’s July AGM, Stevens said she had attended an equal number of presentations by each firm competing for the mandate, but had recused herself from scoring the firms and from the decision to appoint KPMG.

By then Macquarie had already begun formally examining both KPMG’s capacity to perform the audit and the integrity of its participation in the tender.

From audit wins to audit risk

The questions arise against the backdrop of evidence that confidential information belonging to other KPMG audit clients was improperly accessed or shared while the firm was pursuing additional audit work.

The parliamentary inquiry has examined the use of Lendlease information in connection with KPMG’s pursuit of work at Westpac and Dexus, and Optus information in connection with its bid for Telstra’s audit. KPMG has acknowledged failings in its handling of the confidential material and in its response to the whistleblower who originally raised concerns.

At Friday’s hearing, KPMG’s new chief executive John Sams went further, telling the committee that the firm could not dismiss what had happened as the work of a “few bad apples” and that it needed to examine its culture.

There is, however, an important distinction in the Macquarie case. No finding has been made public that confidential information was improperly used to help KPMG win the Macquarie audit. Macquarie is now seeking evidence to satisfy itself on precisely that question.

But the commercial consequence is becoming clear. Conduct involving the handling of confidential client information during the pursuit of audit work is now putting another major audit mandate at risk.

For KPMG, that creates a striking reversal: a scandal centred on how confidential information was handled in the competition for audit work could now cost the firm an A$75 million-a-year audit mandate it only recently won.

This is part of Big4News’ continuing coverage of the KPMG Australia Audit Leak Scandal.

EY has recorded its best-ever result in inspections by the US Public Company Accounting Oversight Board (PCAOB), cutting its Part I.A audit deficiency rate from 28% to 5% in a single year.

The PCAOB’s 2025 inspection report for Ernst & Young LLP found Part I.A deficiencies in just three of the 64 issuer audits reviewed. That put EY level with Deloitte, where inspectors also identified deficiencies in three of 64 audits.

PwC recorded deficiencies in six of the 64 audits inspected, producing a 9% rate, while KPMG had eight deficient audits out of 64, or 13%.

All four firms improved on their previous inspection results. In 2024, EY’s deficiency rate was 28%, KPMG’s was 20%, PwC’s was 16% and Deloitte’s was 14%. Taken together, the latest reports suggest that the Big Four’s aggregate Part I.A deficiency rate fell from approximately 20% in 2024 to about 8% in 2025.

EY’s improvement is particularly striking because it follows several years in which the firm lagged its Big Four rivals. Its inspection findings rate rose from 21% in 2021 to 46% in 2022, before falling to 37% in 2023 and 28% in 2024. EY said the new 5% result was the best it had ever achieved.

The three EY audits cited in Part I.A involved deficiencies relating to revenue and related accounts, income taxes, and insurance-related assets and liabilities, including insurance reserves. None was classified by the PCAOB as an audit involving an incorrect opinion on the financial statements or internal control over financial reporting.

EY has attributed the turnaround to a wider transformation of its US audit practice. The firm says it is making a multi-year $1 billion investment in technology and talent, including AI and advanced data analytics, alongside changes to audit methodology and the timing of audit work.

Joe Link, EY Americas assurance vice-chair, told the Financial Times that the result validated investments in technology, data analytics, streamlined methodologies and people. Previous reporting has also documented EY’s decision to shed a significant number of public-company audit clients as it sought to improve the risk profile and quality of its audit portfolio.

The improvement extends beyond EY. Deloitte’s three deficient audits primarily involved revenue testing. PwC’s six deficiencies primarily related to revenue and related accounts and long-lived assets, while KPMG’s eight primarily involved inventory and other assets.

The PCAOB cautions, however, against treating the inspection percentages as a simple ranking of audit quality. Its inspections concentrate heavily on audits and areas considered to present heightened risks, and the regulator says the audits selected do not constitute a representative sample of a firm’s overall audit portfolio. It also says inspection results are not necessarily comparable between firms or between years and are not intended to function as overall ratings.

The latest results arrive as the PCAOB itself prepares to rethink the way it conducts inspections. Chairman Demetrios “Jim” Logothetis has said the regulator wants an inspection programme more focused on firms’ systems of quality control, and the PCAOB has established an Inspections Modernization Council to help shape the future regime.

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Most ethical failures are not accidents.

They are predictable.

Which means they are preventable.

Yet we continue to treat every scandal — in banking, government, universities, sport, churches, professional services and the corporate world — as though it were an isolated event. We commission inquiries, write reports, express outrage, accept resignations and promise reform. Then, after a period of shame and contrition, the cycle begins again.

It does not have to be this way. My life’s work has been driven by a simple conviction: ethical failures are not inevitable. Most can be prevented if leaders know what to look for before things go wrong.

Over more than twenty-five years, I have worked with leaders, boards and executive teams across Australia. I have investigated some of the country’s most significant failures of integrity, including the Australian cricket team’s ball-tampering scandal in Cape Town and the widespread falsification of preliminary breath tests within Victoria Police.

I have advised Royal Commissions and inquiries into institutional child sexual abuse and into misconduct in banking, superannuation and financial services. I have also sat in boardrooms and leadership rooms, warning people that the conditions for ethical failure were already present, even if the scandal had not yet arrived.

Those experiences, together with my doctoral research at the University of Oxford into decision-making under pressure, have left me with one conclusion above all others: few leaders set out to do the wrong thing. But good people, working in poorly designed systems and under intense pressure, can make decisions that lead to profound harm.

That is why prevention matters.

Every Royal Commission and every investigation into breaches of integrity is a textbook written in hindsight. Leadership is about reading it before the next scandal occurs.

The Cost of Learning Too Late

The case for prevention is not abstract. Ethical failure destroys trust, damages institutions, harms the vulnerable and consumes enormous public resources.

This is the tragedy of repeated ethical failures. The insights that emerge from inquiries are usually preventive insights. They tell us what leaders could have seen, what boards could have asked, what regulators could have challenged, what whistleblowers could have been protected from, and what organisational practices could have been changed before harm occurred.

The purpose of focusing on integrity and ethics is to give leaders the practical wisdom, disciplines and courage to prevent foreseeable failure.

What My Research Taught Me About Ethical Decision-Making

When I went to Oxford to research ethics and leadership, I wanted to understand how leaders actually make decisions when the stakes are high, the information is incomplete and the pressure is relentless.

My doctoral research centred on senior leaders in a major Melbourne public hospital during the COVID pandemic. What I found was not that classical ethics was irrelevant. Virtue, duty, consequences and the common good were all present. But they were present within the reality of human psychology, institutional pressure and organisational constraint. Leaders were drawing on ethics, often implicitly, while operating under conditions in which human judgement is most vulnerable and valuable.

That is where behavioural ethics becomes so important. Behavioural ethics helps us understand why good people can do the wrong thing without recognising themselves as unethical. It explains ethical fading, bias, moral disengagement, rationalisation, group conformity, excessive loyalty, the rush to decision-making and the tendency to treat a performance target as more real than an ethical obligation.

If we know the predictable ways in which judgement fails under pressure, we can design leadership practices to interrupt those failures. Prevention begins when leaders accept that ethical failure is not merely a problem of bad individuals. It is also a problem of systems, pressures, habits and cultures.

Twelve Practices for Preventing Ethical Failure

If ethical failure is predictable, leaders need a practical discipline for prevention. The following twelve practices are a leadership framework drawn from investigations, inquiries, behavioural ethics, governance failures and the experience of working with leaders who genuinely want to do the right thing.

1. Test incentives for their unintended consequences

Organisations often design the conditions for their own failure. Remuneration schemes and incentive structures can make it rational to do the wrong thing. That does not mean people become corrupt overnight. It means the organisation quietly teaches them what will be rewarded.

The Australian cricket team in Cape Town is a powerful example. Under pressure, facing failure and conscious of the consequences of losing, players crossed a line that should never have been crossed. The issue was not simply individual weakness. It was also the pressure created by a system that prized winning and rewarded it in ways that had not been tested ethically.

Boards should hold a Royal Commission into their own incentive schemes before someone else does. They should ask: What behaviour does this scheme reward? What will people be tempted to hide? What happens at the margins? Who benefits when the wrong thing is done?

2. Check targets for perverse outcomes

Targets can clarify priorities. They can also distort judgement. The Victoria Police preliminary breath testing case showed how a target can produce conduct that undermines the very purpose it was meant to serve.

When police were required to meet a target that effectively rewarded large numbers of negative tests, they behaved rationally inside a badly designed system. The result was widespread falsification and a serious loss of trust. My advice was simple: stop the targets. Once the target was removed, the behaviour stopped quickly.

The leadership lesson is clear. Every target should be tested not only for what it measures but for what it may corrupt. If a target makes the ethical purpose harder to achieve, it is not a management tool. It is an integrity risk.

3. Make ethics explicit in decision-making

Under pressure, ethics often fades. People simply stop seeing the decision as ethical at all. It becomes a budget issue, a legal issue, a media issue, a performance issue and/or a process issue. The human consequences disappear from view.

This is ethical fading. It was visible in financial services in the Hayne Royal Commission when decisions about insurance definitions, fees and products were framed around cost reduction rather than fairness, honesty and harm.

The remedy is to make ethics explicit before decisions are made. Leaders should ask: What is the ethical issue here? Who could be harmed? What principle is at stake? Good ethical decision-making requires leaders to build habits that keep ethical reality in the room.

4. Stop bystanderism

In ethics, what you do matters. So does what you fail to do. Many scandals continue not because no one knows but because no one acts. People stand back, hoping someone else will intervene.

Bystanderism is a form of participation. In many organisations, leaders know when a colleague has crossed a line, when a complaint has been mishandled, when a conflict has been tolerated, or when a culture has become unsafe. Their silence becomes part of the failure.

Leaders must define in advance what escalation requires. They must make it clear that loyalty to the organisation never means loyalty to wrongdoing. The standard should be simple: if you see conduct that places integrity at risk, you have a responsibility to act. As one of Australia’s most senior defence chiefs put it, ‘the standard you walk past is the standard you accept’.

5. Make governance real

Many organisations have impressive governance structures. However, governance is real only when people are held accountable. Boards cannot outsource culture and then be surprised when culture fails. Executives cannot point to policies while ignoring behaviour. Committees cannot receive reports without asking hard questions. Governance is not the existence of a framework. It is the disciplined exercise of responsibility.

In the cases of KPMG and PwC in Australia, it is clear that serious weaknesses existed in the governance structures. At PwC, board members structurally reported, at least indirectly, to the CEO and his leadership team. KPMG's board included independent directors, but many of its members were also partners holding operational roles within the firm. Yet boards are responsible for the culture and ethics of the organisations they govern. That principle applies everywhere. If a board wants the privileges of authority, it must accept the burdens of accountability.

6. Ensure regulators and professional bodies act

Regulators and professional bodies exist because self-interest is not enough to protect the public good.

Recent professional services scandals have shown how dangerous it is when those who sell trust fail to practise it. Cheating in professional training, misuse of confidential information, audit failures and conflicts of interest undermine the legitimacy of professions that rely on public confidence.

Where regulators fail to act, the system of integrity fails. If regulators need more powers, responsible leaders should initiate reform. Integrity systems matter because trust cannot survive on promises alone.

7. Protect whistleblowers

Whistleblowing is often a sign that ordinary systems of listening have failed.

Too many whistleblowers are isolated and treated as the problem. KPMG in Australia will become a case study in what not to do with whistleblowers. The whistleblower is often the person giving the organisation its last chance to correct itself before the scandal becomes public.

A serious culture of integrity treats whistleblowers with respect and protects them from retaliation. Leaders should ask themselves: would a person in this organisation feel safe telling us what we most need to hear?

8. Use independent and fearless investigations

When serious concerns arise, organisations often want reassurance more than truth. They want a report that can be waved about publicly, a process that protects reputation, and findings that confirm the problem is limited. That is not integrity. It is reputation management.

Independent investigations matter because truth matters. The most useful investigators are not those who tell clients what they want to hear. They are those who follow the evidence, test explanations, listen to victims and witnesses, and refuse to confine themselves to the narrowest version of the question.

If you are afraid of an independent investigation, you are probably afraid of the truth. The organisation is already in danger. If you are afraid of producing a fearlessly independent investigation, you have already failed in your duty of care to your client.

9. Set exemplary standards

Integrity requires exemplary standards. This is especially true for leaders in public life, regulators, boards and organisations entrusted with public confidence.

The path to corruption often begins with cultivation: a meal, a gift, an invitation, a private meeting, a favour, a promise of access. Then comes compromise. Then corruption. Wise leaders understand this sequence and interrupt it early.

Integrity leaders, including those who head our anti-corruption commissions, refuse free hospitality, pay their own way, insist on note-takers, avoid private meetings that create risks of a perceived or actual conflict of interest, and apply stricter standards to themselves than the law requires.

The question for leaders is not, ‘Can I get away with this?’ It is, ‘What standard am I setting for everyone else?’ Our business leaders should hold themselves to the same standards of behaviour as the heads of integrity agencies and judges. CEOs should not attend lunches or dinners with people who are known to be ‘persons of interest’ to local anti-corruption agencies. They should not participate in legitimising dubious and unethical practices.

10. End collusion

Ethical failure often becomes possible because people protect one another. Collusion is not always a conspiracy. Sometimes it is a culture of deference, convenience, fear or misplaced loyalty. It can occur when boards overlook past misconduct in a preferred chief executive, when leaders tolerate conflicts of interest, when organisations normalise relationships with questionable associates, or when people confuse access with influence and influence with success.

The antidote is transparency. Record decisions. Declare conflicts. Ask who benefits. Avoid private arrangements that cannot be defended publicly. Do not appoint people whose past conduct contradicts the values the organisation claims to uphold. Character matters long before crisis arrives.

11. Form leaders with character

Aristotle understood something many modern leadership programmes forget: ethics is not simply a matter of rules. It is a matter of character formed through repeated action.

People become courageous by doing courageous things. They become honest by telling the truth when it is costly. They become just by acting fairly when fairness is inconvenient. They become humble by listening, learning and admitting error.

Leadership development must be character formation. Leaders need technical skill, strategic judgement and financial discipline. But they also need courage, prudence, honesty, compassion, humility and a commitment to the common good.

Many Australians practise these virtues every day as nurses, paramedics, teachers, police officers, firefighters, doctors, public servants, carers, road workers, tradespeople and volunteers. They do not call it virtue ethics. They simply serve. Leaders of organisations should follow the behaviours of those who serve on the front line.

12. Cultivate cultures of integrity

Culture is what grows when repeated practices take root. Integrity is fostered through decisions, habits, rituals, expectations and consequences.

I recently joined my local Country Fire Authority brigade. In my brigade, I see integrity in action: ordinary people doing ordinary tasks with extraordinary seriousness because community safety depends upon them. The widespread exam-cheating uncovered at KPMG Australia should itself have been a red flag well before recent events.

Organisations need the same discipline. Culture is formed by what leaders repeatedly do, tolerate, reward, ignore and punish.

From Post-Mortem to Foresight

We have become far too skilled at post-mortems. The harder task is foresight.

Foresight asks leaders to identify the conditions that make ethical failure more likely before harm occurs. It asks boards to test incentives and targets. It asks executives to slow down under pressure. It asks regulators to act with courage. It asks organisations to protect whistleblowers, commission independent investigations, end collusion, demand accountability and cultivate character. This is preventive ethics. It is well past time to take this path.

About Dr Peter Collins

Dr Peter Collins is an executive adviser specialising in ethics, integrity, governance and organisational leadership. Over more than 25 years, he has worked with governments, boards, CEOs and executive leadership teams to understand why misconduct and major integrity failures occur, and how organisations can reduce the risk of recurrence.

He is a former Executive Director of Australia’s Centre for Ethical Leadership, former Head of Ethics & Integrity at the Walter and Eliza Hall Institute of Medical Research, and a former Principal at Nous Group and consultant with McKinsey & Company. He has also advised Australian Cabinet Ministers on foreign affairs, national security and health policy.

Peter holds a DPhil in Ethics from the University of Oxford, where his doctoral research examined senior leadership decision-making and ethics under pressure. His work spans investigations, Royal Commissions, governance reform, organisational culture and the development of systems designed to prevent integrity failures rather than simply respond to them.

This article is part of the Big4News Expert Voices Series

Anthropic, the company behind Claude, has not publicly identified its auditor. But three of the four largest global accounting firms now have significant commercial relationships with the company, creating independence issues that exclude them from auditing the company - and the last one standing is EY.

PwC announced in May that it was expanding its strategic alliance with Anthropic, rolling out Claude products across its own workforce, establishing a joint centre of excellence and training and certifying 30,000 PwC professionals.

Days later, KPMG announced a global alliance under which Claude would be embedded in its Digital Gateway platform, with Anthropic naming KPMG a preferred partner for private equity and the companies agreeing to develop new Claude-powered products together.

Deloitte’s relationship with Anthropic goes back further. The firms first announced an alliance in July 2024, and by April 2025 Deloitte had launched a Claude-focused training and certification programme targeting 15,000 professionals globally. In October, the alliance expanded again, with Deloitte making Claude available to more than 470,000 people across its global network and establishing a Claude Center of Excellence.

US auditor-independence rules require auditors to be independent of their audit clients both in fact and appearance and place restrictions on business relationships between an accounting firm and an audit client. The SEC’s broader test asks whether a reasonable investor, knowing all the relevant circumstances, would regard the auditor as capable of exercising objective and impartial judgment.

The Financial Times concludes that the available evidence points towards EY, which does not appear to have an equivalent commercial alliance with Anthropic, as the most plausible candidate. It stresses, however, that Anthropic’s auditor has not been officially confirmed.

The independence issue may become increasingly significant as the Big Four race simultaneously to sell AI-related consulting services, embed third-party AI models into their own products and maintain their traditional role as independent auditors of the world’s largest companies.

The question is no longer simply which accounting firm has the technical capability to audit an AI company. It is also which firms remain sufficiently independent to do so.

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PwC has urged the Public Company Accounting Oversight Board to make the use of artificial intelligence by companies and auditors its “foremost priority”, arguing that the regulator should provide guidance in the near term on how its existing auditing standards apply as AI becomes increasingly embedded in audit work.

In an August 5 comment letter responding to the PCAOB’s consultation on its future standard-setting agenda, PwC said the regulator should initially focus on guidance rather than attempting immediately to write detailed new rules for a technology that is changing rapidly.

PwC also recommended that the PCAOB establish an AI task force, deepen its engagement with audit firms and draw on its inspection teams. The firm said guidance should address concerns including data bias, explainability and automation bias, together with questions around model training, traceability and whether AI-generated work can be reconstructed.

The firm argued that humans should ultimately remain responsible for judgments including risk assessments, the sufficiency of audit evidence, contradictory information and the final audit conclusion.

PwC is not alone in pressing the issue. The regulatory question is becoming crucial as major firms invest heavily in bringing AI into their audit processes. Bloomberg Law reported Wednesday that both auditors and investors are now pushing the PCAOB to move faster in explaining how its existing standards should be applied to AI-enabled audit work.

Long-established concepts such as audit evidence, professional scepticism, supervision, documentation and human accountability now have to be reconsidered in a world where increasingly significant parts of the audit process are performed or assisted by AI.

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Over the last four months, the eyes of the international business press have been focused on Australia, where the local KPMG firm is embroiled in a spiralling crisis. Meanwhile, an unusually severe disciplinary decision against a former KPMG partner received remarkably little notice outside South Africa.

On 15 April 2026, South Africa’s Independent Regulatory Board for Auditors ordered the permanent disqualification of former KPMG partner Nhlanhla Sipho Malaba.

The panel also imposed fines totalling R1.6 million (~ US$97,000) and ordered him to pay IRBA’s costs of R9,252,537.92 (~ US$559,000).

But the scale of the financial consequences is not the most important aspect of the case. What is extraordinary is the bluntness of the panel’s assessment. It did not stop at the familiar language of insufficient professional scepticism, inadequate audit evidence or failures of due care. It found that Malaba had acted dishonestly, was complicit in a cover-up, knowingly suppressed red flags identified by his audit team and devised an unlawful scheme to conceal VBS Mutual Bank’s true financial position. It described the resulting audit opinion as fraudulent and set out the evidence underpinning those conclusions in a 101-page merits ruling.

… perpetuate a patent fraudulent recordal in the VBS Mutual Bank’s audited financial statements amounting to approximately R500 million as an asset…

This recordal was a fictitious non-existent and fraudulent account of VBS Mutual Bank’s financial position. This financial hole was intentionally plugged into VBS Mutual Bank’s balance sheet to deceive not only the customers of VBS Mutual Bank but also the members of the public in general including IRBA and other financial regulatory bodies.

… the respondent’s conduct displays:

• dishonesty and lack of integrity in having suppressed critical audit issues from governance reporting;

• complicity in the maintenance of a false balance sheet figure;

• the signing (and authorising publication) of a clean audit report despite known, unresolved cash discrepancies, as aforesaid; and

• the failure to discharge the statutory duty to report a reportable irregularity to IRBA.

The only inescapable finding on this charge is to find the respondent guilty. The respondent is hereby found guilty as charged.

IRBA Merits Ruling, pp. 78-80

The panel concluded that Malaba was responsible for “devising an unlawful scheme” to conceal VBS’s true financial position, and that he had been complicit in a cover-up designed to secure a clean audit opinion for VBS, knowingly suppressing red flags identified by his audit team.

IRBA described Malaba’s conduct as “flagrant and appalling” and called him “a disgrace to the auditing profession”. It then ordered IRBA to take the steps necessary to secure his permanent disqualification as a registered auditor.

Sanction Ruling – IRBA v Nhlanhla Kevin Sipho Malaba (Case Nos: K1/2/3829A, K1/2/3902A & B)

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IRBA disciplinary panel’s ruling on the appropriate sanctions after finding former KPMG partner Sipho Malaba guilty on all charges arising from the VBS Mutual Bank audit and related engagements.

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Ruling on the Merits – IRBA v Nhlanhla Kevin Sipho Malaba (Case Nos: K1/2/3829A, K1/2/3902A & B)

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Disciplinary ruling finding former KPMG partner Sipho Malaba guilty on all charges, including dishonesty and complicity in concealing material cash discrepancies in the 2017 VBS Mutual Bank audit.

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“A good bank for ordinary people”

To understand why Malaba’s conduct attracted such a severe response, it is essential to understand the nature of VBS bank, and who bore the consequences when it collapsed.

VBS began life in 1982 as the Venda Building Society. It later became a mutual bank, serving communities concentrated in South Africa’s Limpopo province. Its clients were ordinary retail customers, burial societies and stokvels (community savings clubs through which families pooled money), and it used those funds primarily to provide mortgages and short-term loans.

As President Cyril Ramaphosa told Parliament in November 2018, VBS had for much of its existence been ‘a good bank for ordinary people’ that provided loans and mortgages in rural areas.

The situation changed dramatically after Andile Ramavhunga became chief executive in 2014 and accelerated after Tshifhiwa Matodzi became chairman in 2015. Under their leadership, VBS started pursuing a far more aggressive expansion strategy. Bank officials began paying commissions and bribes to induce municipalities to deposit billions of rand at VBS, even though municipalities were not legally permitted to place public money with mutual banks.

On paper, the transformation looked like a remarkable commercial success. In reality, money flowing into VBS was being looted from the bank.

Funds were siphoned out for the benefit of executives, associates and politically connected recipients, using fictitious deposits, fraudulent or unsupported loans and other transactions. False accounting entries were then used to conceal the resulting hole, making assets and cash appear to exist when they did not.

This led to a massive hole in the bank’s accounts.

The KPMG Audit

Zondi Nduli was a third-year KPMG audit clerk working on VBS’s 2017 audit. While checking the bank’s cash balances, he and a junior colleague discovered that the numbers in VBS’s accounts did not match the money actually held by the bank.

The clearest example was VBS’s settlement account. Its books said that about R414 million was sitting there. The bank statement showed just R4.3 million. That left a shortfall of roughly R410 million in that account alone.

When Nduli looked across VBS’s cash balances more broadly, the unexplained gap was even larger: about R700 million.

The junior auditors repeatedly sought information from VBS management to explain the discrepancies, but were not able to obtain the evidence needed to reconcile the balances.

The problem was then escalated to audit manager Kafuma Munalula, who realised that the missing cash was large enough to make the difference between VBS being solvent and insolvent.

The junior auditors had found the hole left by the looting.

Munalula escalated it to Nhlanhla Sipho Malaba, the engagement partner.

Inside VBS, chief financial officer Philip Truter was well aware of the problem. He later told the Prudential Authority that he telephoned Malaba, who came to his office. They closed the door, and Truter explained that the settlement account contained an unreconciled difference exceeding R400 million.

According to Truter’s account, Malaba asked him:

Do you want to tell me R½ billion is gone or missing?

The two discussed presenting the missing amount as a reconciling item between the general ledger and the bank statement, rather than adjusting the balance sheet to reflect the money actually held. Truter said he subsequently sent a WhatsApp message to chairman Matodzi, reporting that he had met Malaba and that the missing cash would be shown as a reconciling item, leaving the balance sheet unchanged.

In the meantime, audit manager Munalula was working to ensure that the unresolved reconciliations were recorded. She prepared a report for VBS’s audit committee stating that the bank reconciliations remained outstanding. Malaba reviewed the draft, crossed out the reference and told her that the issue had been resolved.

On 17 July 2017, with VBS pressing for the audit to be completed, Munalula sent Malaba a text message:

Are you okay for the VBS opinion to be signed in light of EMID report still outstanding and also if you’re happy that cash is fine? They want to print today.

A few hours later, Malaba replied:

Yes, happy to go ahead.

Nduli was troubled when he learned that a clean audit opinion had been signed. He returned to the audit file looking for evidence of the additional procedures he had been told Malaba and a VBS executive would perform. He found none.

Nduli later altered the cash working paper after being told that the partner was satisfied with the balance, a step the Motau investigation subsequently criticised as misleading.

Anatomy of a Cover-up

Philip Truter prepared the financial statements.

Matodzi and chief executive Ramavhunga signed the directors’ responsibility statement.

Malaba provided the “independent” assurance that the accounts fairly presented the bank’s position.

IRBA later found that Malaba’s independence was severely compromised because businesses associated with him had obtained about R25 million in credit facilities from VBS while he was responsible for auditing the bank. He had been actively involved in securing those facilities, had not disclosed them to KPMG, and later told the firm they had been restructured when their position had not materially changed.

VBS Collapses

Less than eight months after the audit opinion was signed, VBS could no longer meet its obligations to depositors. It was placed under curatorship on 11 March 2018 and into final liquidation that November.

The Motau investigation (The Great Bank Heist) identified approximately R1.9 billion in gratuitous receipts paid to 53 people and entities. The IRBA sanction panel referred more broadly to losses of approximately R2.3 billion arising from the fraud and collapse, equivalent to around US$139 million.

Much of the damage fell on public bodies and ordinary depositors.

Twenty municipalities had deposited approximately R3.7 billion with VBS. Although around R2.2 billion was returned, approximately R1.5 billion remained unrecovered. This was public money needed to support services such as water, sanitation, electricity and local infrastructure.

Thousands of retail depositors were also caught in the collapse. They included elderly customers, stokvels whose members relied on pooled savings to meet household emergencies, and burial societies. The South African authorities subsequently protected qualifying retail deposits up to R100,000 per depositor.

Of the original 18,300 retail deposit accounts, 17,750 accounts worth R260 million were transferred to Nedbank, allowing most of those customers to recover their money. The protection did not extend to municipal or corporate deposits, or fully cover retail creditors with balances above the guarantee.

It is particularly disturbing that many of the people who have suffered loss as a result of these crimes are poor rural residents.

It is critical that every effort is made to recover the stolen funds to minimise the losses suffered by the bank’s depositors.

For much of its existence, VBS was a good bank for ordinary people that gave loans and mortgages to people in rural areas – and now, through greed and deception, that bank has been destroyed.

The real tragedy of the VBS saga is that money was stolen from those people in our society who could least afford it.

President Cyril Ramaphosa

The Great Bank Heist – Investigator’s Report to the Prudential Authority (Advocate Terry Motau SC, assisted by Werksmans Attorneys)

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Forensic investigation report into the large-scale looting of VBS Mutual Bank, detailing how approximately R1.9 billion was extracted through fictitious deposits, related-party loans and accounting manipulation.

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The fallout for the auditors

KPMG’s audit opinion did not create the fraud at VBS. But it placed the credibility of a global audit brand behind financial statements that covered up looting on an industrial scale and made an insolvent bank appear financially sound.

Malaba resigned in April 2018, after the firm brought disciplinary charges concerning his failure to disclose financial interests connected with VBS. KPMG subsequently reported Malaba to South Africa’s Directorate for Priority Crime Investigation, known as the Hawks, and said it supported criminal action being taken.

The firm faced civil proceedings from the VBS liquidator, with the parties reaching a confidential settlement in 2024. South African media reported that KPMG agreed to pay R500 million against an original claim of approximately R864 million, although the settlement terms were not publicly disclosed.

Malaba was arrested in 2020 and charged, alongside other defendants, with offences including racketeering, theft, fraud, corruption and money laundering. As of April 2026, he continued to face those criminal charges, which are separate from IRBA’s disciplinary findings.

A global network, nationally contained scandals

The VBS ruling was widely reported in South Africa. As of 12 August 2026, a Big4News search found no report of the April sanction in Reuters, the Financial Times, Bloomberg, the Wall Street Journal, the BBC, the Guardian, AP, Accountancy Age or International Accounting Bulletin.

The conduct occurred within KPMG South Africa, but the questions it raises are not uniquely South African: whether junior auditors can challenge powerful partners, whether internal escalation mechanisms protect the public when concerns reach the top of an engagement, and whether global networks learn from serious failures that occur within individual member firms.

That matters because KPMG operates internationally under a common brand, even though its member firms are legally separate. A failure may occur inside one national firm, but the governance and audit-quality questions it exposes can have much wider relevance.

KPMG’s crisis in Australia is now being treated as a matter requiring the direct involvement of its global leadership. The VBS ruling shows why such crises cannot be understood only as local problems.

This article is part of the Big4News Case Watch series. Case Watch tracks significant regulatory investigations, enforcement actions and litigation involving Deloitte, PwC, EY and KPMG, focusing on matters that shed light on internal culture, governance and accountability.

About Claudine Cassar

I’m a corporate anthropologist and former Deloitte equity partner. I sold my technology business to Deloitte in 2016 and led the Malta Consulting team for five years. I am the founder and editor of Big4News, which provides independent, clear analysis of PwC, Deloitte, EY, and KPMG — free from corporate spin.

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