Australia is considering forcing companies to change audit firms after 20 years, as part of a broader overhaul of the rules governing the country’s accounting and auditing sector.
The proposal has divided the Big Four. Deloitte and PwC oppose mandatory rotation, while KPMG and EY support a less prescriptive “comply or explain” approach.
What is being proposed?
Treasury has put three related measures on the table.
Companies would have to disclose how long both their audit firm and lead auditor have served, together with the date of the most recent audit tender.
More significantly, all reporting entities would have to put their audit out to public tender every ten years. The incumbent auditor could compete to retain the work.
The strongest option goes further: after 20 years, the incumbent firm would have to go.
Treasury says combining the ten-year tender with a 20-year maximum tenure would broadly mirror the approach adopted in Britain and the European Union. It argues that compulsory rotation could reduce excessive familiarity between auditors and management, and therefore reduce real or perceived conflicts of interest. It also acknowledges the downside: additional costs and the loss of accumulated knowledge when a new firm takes over.
The stakes are not insignificant. Treasury says the average audit-firm tenure among Australia’s largest 200 entities was 13.2 years in 2022, with individual relationships ranging from one year to 58 years.
From PwC to KPMG: how scandal drove the reform process
The review did not start with KPMG.
The government began examining the regulation of accounting, auditing and consulting firms following the PwC tax leaks scandal. An issues paper followed in May 2024. Treasury said subsequent feedback and “recent events” confirmed regulatory gaps around independence and ethics, firm culture, internal controls and the prioritisation of audit quality.
Then came KPMG.
Allegations that KPMG Australia personnel misused confidential audit-client information, followed by revelations about the firm’s handling of the whistleblower who raised concerns, brought renewed political pressure to the reform process.
Assistant Treasurer Daniel Mulino explicitly connected the two scandals when the options paper was released, saying the conduct exposed through the PwC and KPMG inquiries demonstrated problems involving confidential information moving between different parts of large firms.
KPMG itself acknowledges the connection. In presenting its August submission, the firm refers to the “significant and understandable public scrutiny” arising from the whistleblower concerns and says the affair reinforced the importance of governance, oversight and integrity.
So a regulatory process that began as a response to PwC is now being shaped by a second Big Four scandal.
Deloitte
Deloitte is unequivocally opposed to mandatory rotation. Its 12 August submission says, “We are not supportive of this option,” arguing that a 20-year cut-off would impose “artificial restraints on choice” without clear evidence that rotation improves audit quality or accountability. It also warns that excluding the incumbent could further narrow the already limited pool of firms able to audit large, complex companies. Deloitte also opposes compulsory ten-year tendering, preferring greater disclosure of audit-firm and partner tenure and the date of the last tender.
KPMG
KPMG supports reforms that “strengthen governance, transparency and regulatory oversight”. On rotation, however, the Australian Financial Review reports that KPMG favours a softer “comply or explain” approach rather than an absolute 20-year limit. This would allow companies to retain an auditor beyond the threshold if they explained why. KPMG argues that evidence of an audit-quality benefit from mandatory rotation remains inconclusive and that changing firms can create significant transition costs and risks.
PwC
PwC opposes mandatory firm rotation, warning that compulsory rotation could impose “significant transition costs”, reduce accumulated knowledge of the audited company and disrupt audit quality, particularly for large and complex organisations, according to the AFR’s account of its submission.
EY
EY takes a more accommodating position. According to the AFR, like KPMG it supports or partially supports mandatory rotation under a “comply or explain” model rather than an inflexible 20-year prohibition.
To summarise: PwC and Deloitte are opposed to mandatory rotation, while KPMG and EY are prepared to accept a qualified version.
The second-tier firms were also divided. Grant Thornton and BDO support mandatory audit-firm rotation, but only for public-interest entities, while Pitcher Partners opposes the proposal, according to the AFR.
What happens elsewhere?
Australia would not be breaking new ground.
In the UK, public-interest entities must tender their audit at least every ten years and change audit firm after 20 years.
The European Union also imposes mandatory firm rotation. The basic limit for public-interest entities is ten years, although member states can allow an extension to 20 years following a competitive tender, or 24 years in certain joint-audit arrangements. The rules are set out in Article 17 of the EU Audit Regulation.
The United States relies on a different model. There is no general mandatory rotation of the audit firm. Instead, SEC rules require the lead and concurring audit partners to rotate after five years, with other covered audit partners generally subject to a seven-year limit.
The PCAOB seriously considered mandatory firm rotation in 2011 but did not adopt it. After more than two years of study and consultation, PCAOB board member Jeanette Franzel said that the vast majority of commenters opposed mandatory rotation and that the Board had not found evidence supporting a one-size-fits-all requirement.
Australia therefore is now assessing whether to move closer to the British and European model, or continue relying principally on partner rotation as the United States does.
Does mandatory rotation actually work?
This is where the argument becomes more complicated.
There is evidence that changing audit firms produces a fresh pair of eyes. But there is not conclusive evidence that this necessarily translates into better audit quality.
According to the Australian Financial Review, Ownership Matters examined ASX 300 audits and found that bringing in a new audit firm was associated with changes to key audit matters almost three-quarters of the time. The figure was 63% when only the audit partner changed and 57% when there was no change. Ownership Matters said the findings provided evidence that changing firms was more strongly associated with changes in audit focus than partner rotation alone.
A 2025 European study covering 6,103 firm-year observations across 29 countries reached a similar conclusion. It found substantial changes in the key audit matters identified after audit-firm changes, while the effect of partner rotation was much smaller. The author concluded that firm rotation produced a measurable “fresh-look effect”.
But that study contains an important caveat: different key audit matters are not the same thing as a better audit. The author explicitly says the research does not analyse the impact of rotation on audit quality or capital markets.
And other research has reached the opposite conclusion. A study of Italy’s dual-rotation system, which combines partner and firm rotation, found that improvements in audit quality were attributable to partner rotation rather than changing audit firm. Other Italian research found that the quality of audited earnings was lower in the first three years after a new audit firm took over than in later years of the engagement.
So Deloitte is right about one thing: the empirical case is not settled.
What the evidence does support rather more strongly is the narrower proposition behind the regulation: changing audit firms changes what auditors look at.
Anecdotal evidence
Anecdotally, there are cases where a change of auditor appears to have brought markedly different scrutiny. In the UK, Deloitte replaced RSM Robson Rhodes as iSOFT’s auditor in 2005. The following year, work by Deloitte uncovered accounting irregularities relating to periods audited by its predecessor; regulators later sanctioned RSM Robson Rhodes over failures in the earlier audits.
There are also examples of partner rotation within the same firm producing a different outcome. KPMG had audited Malaysia’s Serba Dinamik for seven financial years, but for FY2020 it switched the engagement partner from its Sarawak office to a partner based in Kuala Lumpur. That audit subsequently raised red flags over transactions worth billions of ringgit. This illustrates that rotation can indeed provide a fresh perspective — while also showing that fresh eyes do not necessarily require changing the audit firm itself.
So where does that leave Australia?
Mandatory firm rotation has an intuitive appeal: after two or three decades, a genuinely new audit firm may question assumptions, relationships and judgements that have become embedded over time. Both the Australian evidence on key audit matters and the broader European research suggest that changing firms can produce a meaningfully different audit focus.
But fresh eyes and better audit quality are not necessarily the same thing. A new auditor also gives up years of accumulated knowledge, faces a learning curve and may have to understand an extraordinarily complex organisation under tight reporting deadlines. The research remains mixed on whether the benefits consistently outweigh those costs.
This is ultimately the question Australia has to answer: after an audit relationship has lasted 20 years, is changing the partner enough — or should the firm itself sometimes be required to make way?
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About the author: Claudine Cassar is the founder and editor of Big4News, covering audit, consulting, regulation and governance across Deloitte, PwC, EY and KPMG.