Key takeaways
EY strengthens governance: A new Oceania Public Interest Council will have a majority of independent members.
KPMG provides a warning: Independent directors and external investigators failed to uncover important evidence during their initial inquiries.
Independence goes beyond appointments: Effective oversight requires access to information, investigative authority and the power to challenge management.
Regulatory pressure grows: Australia is considering tougher governance requirements for major accounting firms.
EY Australia has established a new independent oversight council as the country’s major accounting firms face growing pressure to strengthen their governance and accountability arrangements.
The firm announced the Oceania Public Interest Council on 4 November 2026, appointing former King & Wood Mallesons global chief executive Sue Kench as its independent chair.
The council will provide external perspectives on governance, audit quality, professional standards and the public-interest implications of decisions taken by EY’s regional leadership.
Its establishment comes as Australian regulators examine whether the traditional partnership governance model provides sufficient safeguards against conflicts of interest, misconduct and failures of internal accountability.
EY’s initiative represents a proactive step towards stronger governance. But the firm would do well to heed the lessons from KPMG Australia’s whistleblower scandal.
At KPMG, independent directors had extensive powers to investigate whistleblower allegations. Yet an external inquiry they oversaw failed to uncover important evidence and relied heavily on the accounts of senior partners whose conduct it examined.
The experience raises a fundamental question for EY and the wider profession: what separates genuinely independent scrutiny from independence that exists primarily on paper?
EY moves to strengthen independent oversight
EY plans to establish a five-member council comprising three independent non-executives and two senior EY leaders.
Kench will serve alongside Oceania managing partner and chief executive David Larocca and regional risk management and independence leader Leigh Walker. She will oversee the development of the council’s charter and operating arrangements. EY has engaged an executive search firm to recruit the remaining two independent members.
Kench brings almost 30 years of experience at King & Wood Mallesons, including seven years as its global chief executive. She also joined EY’s Global Governance Council in November 2025.
The Oceania council will advise EY’s executive leadership on policies, strategy and public-interest responsibilities. It will also publish an annual report outlining its activities and how it has discharged its responsibilities.
EY says the council will introduce additional independent challenge into its regional governance structure and support the delivery of high-quality audits and other professional services.
Its announcement follows a global governance review and draws on the firm’s UK arrangements, which operate under the Financial Reporting Council’s Audit Firm Governance Code.
KPMG’s governance failures provide a warning
The KPMG Australia whistleblower scandal has exposed weaknesses in the firm’s internal accountability, ethical culture and handling of allegations involving senior partners.
Several independent reviews have identified problems that extended beyond individual conduct.
The Australian Department of Finance commissioned former senior public servant Dr Ian Watt to examine KPMG’s culture, ethics, integrity and governance. His October 2026 review found that KPMG had failed to respond appropriately to the whistleblower’s concerns and that its response reflected broader weaknesses in governance and accountability.
Crucially, KPMG already had policies, reporting channels and oversight structures. The problem was that these mechanisms failed to operate effectively when serious allegations arose. The firm fragmented responsibility, failed to bring together warning signs and did not ensure timely, coordinated decisions.
Other independent reviews by Principia Advisory and the Andrews Group identified further weaknesses in ethical culture, whistleblower protection, accountability and the willingness to challenge senior leadership.
KPMG has since embarked on an extensive governance reform programme. It has appointed its first independent chair, increased independent representation on its board and strengthened oversight of ethics and whistleblower matters. In October, it also announced plans for a new Integrity Office and a whistleblower protection officer, alongside changes to its conduct and disciplinary arrangements.
These reforms follow leadership departures, client losses, parliamentary investigations and restrictions on the firm’s ability to secure new Commonwealth government contracts.
KPMG is trying to strengthen the safeguards that failed to prevent the crisis.
EY appears to be positioning itself ahead of a similar test, although the firm attributes its initiative to its global governance review and commitment to public-interest accountability.
When independent directors oversee a flawed investigation
One of the most revealing aspects of the KPMG scandal concerns the failure of independent board oversight during investigations into the whistleblower’s allegations.
KPMG’s independent directors did not simply stand aside. Several became concerned about management’s handling of the allegations and pushed for further scrutiny. Their intervention eventually led KPMG to commission law firm Allens to conduct Project Magenta in September 2025.
But earlier events had already exposed weaknesses in the directors’ access to information.
In November 2024, then-chairman Martin Sheppard instructed independent directors to refer any approaches from the whistleblower to KPMG’s general counsel, Louise Capon. The arrangement channelled communications through the firm’s own management structure, even though the allegations concerned the conduct of senior personnel.
KPMG had also engaged Ashurst to review aspects of its response to the whistleblower. The firm subsequently relied on Ashurst’s involvement when assuring directors, clients and Parliament that it had subjected the allegations to external scrutiny.
However, Ashurst told Parliament that it had not undertaken an investigation into the underlying misconduct allegations. Its role involved providing legal advice and reviewing matters within the scope of KPMG’s instructions.
Worse, documents subsequently released by Parliament revealed that KPMG had supplied Ashurst with incomplete information about the whistleblower’s disclosures. The firm’s lawyers consequently assessed his entitlement to statutory whistleblower protection without access to material that KPMG had already obtained.
The subsequent Allens investigation exposed an equally troubling problem.
A board subcommittee, led by deputy chair Carmel Mortell and including three independent directors, oversaw Project Magenta and approved its scope and methodology.
Yet documents subsequently examined by the Australian Financial Review showed that the directors had been granted full and unrestricted powers to investigate the allegations.
Despite those powers, the investigation remained remarkably limited.
Allens conducted just 14 interviews, all with senior KPMG partners or directors. Most lasted approximately half an hour. The investigators did not interview the whistleblower, junior members of the audit teams, affected clients or rival audit firms. Nor did they comprehensively search the relevant emails and digital records.
Perhaps most revealing was Allens’ explanation for not pursuing further evidence.
The investigators relied on their assessment of the credibility of senior partners Eileen Hoggett, Paul Rogers and Kim Lawry when deciding that additional interviews and searches were unnecessary.
In effect, the investigators treated the seniority and perceived credibility of individuals whose conduct they were examining as reasons not to test their accounts more extensively.
The December 2025 Project Magenta report nevertheless established that KPMG partners had shared confidential Lendlease information with the team pursuing Westpac’s audit, without Lendlease’s authorisation.
Despite identifying conduct that likely breached KPMG’s confidentiality obligations, Allens classified the broader Lendlease allegation as unsubstantiated. It concluded that the Westpac tender team had gained no competitive advantage from the information — a finding that subsequent discoveries would call into question.
KPMG subsequently relied on the investigation’s conclusions when defending its handling of the whistleblower’s concerns.
But further investigations exposed evidence that the original inquiry had missed.
In July 2026, KPMG confirmed that Allens had uncovered evidence supporting the whistleblower’s allegation that confidential Lendlease documents had been kept in a locker at its Sydney office.
Investigators subsequently discovered a photograph of confidential Lendlease board papers on former partner Kim Lawry’s phone.
The discoveries raised further questions about the original investigators’ decision not to examine relevant digital records or test senior partners’ accounts more extensively.
They also exposed the limitations of the oversight process that had approved the investigation’s scope and methodology.
The most troubling aspect of Project Magenta is not simply that an external investigation failed to establish the full facts. It is that independent directors with extensive investigative powers oversaw a process that accepted senior partners’ accounts without sufficiently testing them against other available evidence.
KPMG’s experience reveals two distinct weaknesses in independent oversight. Management can limit what independent directors know, but independent directors can also fail to exercise sufficient challenge or make effective use of their investigative authority.
External does not mean independent
The distinction between appointing external investigators and granting them genuine investigative independence lies at the heart of the KPMG case.
Veteran investigator Richard James examined these failures in an interview on the independence of KPMG’s whistleblower investigations.
James, whose investigative career spans more than three decades, distinguished between poor investigative execution and weaknesses in the design of an investigation.
An investigator may possess considerable experience and professional integrity, but those qualities cannot compensate for a mandate that limits the evidence, witnesses or questions the investigator can pursue.
James highlighted the consequences of allowing the organisation under scrutiny to influence the scope of an inquiry, particularly when allegations concern senior personnel.
Corporate investigator Charles Cohen developed a related argument in his analysis of the institutional response to whistleblowing.
Cohen identified the initial classification of a complaint as a critical decision. When an organisation treats allegations about integrity and misconduct primarily as an employment grievance, it can redirect attention away from evidence, accountability and conflicts of interest.
He also argued that partnership structures can intensify these problems because ownership, management and commercial interests are unusually concentrated.
That assessment echoes concerns raised by financial regulation specialist Abdelhamid Taha in his examination of Big Four whistleblowing systems.
Taha identified how partnership incentives and internal power structures can undermine formal safeguards, particularly when those responsible for evaluating misconduct have professional or commercial relationships with the individuals under scrutiny.
Together, these analyses identify a structural problem. An organisation may appoint independent directors and engage external investigators while retaining considerable influence over how it classifies complaints, defines investigative mandates and controls the flow of evidence.
Meaningful independence therefore requires more than formal authority. It requires independent overseers who can obtain evidence, challenge management’s account of events and insist on further investigation when the findings do not withstand scrutiny.
The regulatory environment is changing
Australia’s government is considering reforms that could require major accounting partnerships to strengthen their governance arrangements.
In July 2026, Treasury released an options paper on strengthening integrity in accounting, auditing and consulting firms.
The proposals include governance requirements for large audit firms, measures to address conflicts of interest within multidisciplinary partnerships and stronger audit surveillance.
EY says its new council is consistent with the position it advanced in its submission to the Treasury consultation.
Its approach also reflects a model already established in the UK, where major audit firms must involve independent non-executives in governance arrangements designed to protect audit quality and the public interest.
However, appointing independent directors does not necessarily resolve the underlying conflicts created by the partnership structure.
Unlike shareholders in a listed company, partners typically combine ownership rights with professional and managerial responsibilities.
Their financial interests can therefore intersect with decisions about partner discipline, client relationships, reputational risk and the handling of allegations against colleagues.
Independent oversight can help address those conflicts, but only if the governance framework gives its members sufficient authority to act.
What makes independent oversight effective?
EY’s announcement leaves several important questions unanswered.
Will council members have the authority to commission investigations without executive approval?
Can they determine the scope of those investigations, require access to internal records and obtain information directly from whistleblowers?
Will they receive complaints and risk reports independently of management?
Can they challenge decisions affecting partner remuneration, disciplinary action or audit independence?
And will they have a mechanism to escalate unresolved concerns to regulators or report disagreements publicly?
EY has not yet published the council’s charter, so it remains unclear which of these powers the independent members will possess.
These are not minor details. They determine whether the council can exercise meaningful oversight or must rely primarily on the information and assurances that executive leadership chooses to provide.
The experience of KPMG Australia demonstrates that an organisation can establish formal oversight structures, appoint independent directors and commission external investigations without ensuring that those arrangements operate effectively.
EY deserves recognition for taking steps to strengthen its governance before a comparable crisis emerges within its Australian operations.
But establishing an independent council is only the beginning.
The real test is not who sits on the oversight body, but who controls what that body is allowed to know, investigate and disclose.
Until EY publishes its charter and demonstrates how the council will exercise its authority, the effectiveness of its new oversight arrangements remains an open question.
This article is part of the Big4News Investigations & Analysis series, which examines the structural forces shaping Deloitte, PwC, EY and KPMG.
For more cases involving the Big Four audit firms, explore our Global Big Four Scandal Timeline, which documents major controversies, regulatory investigations, enforcement actions and corporate scandals involving the firms around the world.
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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This is a very interesting development. However, the skills needed are to understand integrity risk in consultancies and law firms. One of the challenges of law firms is that they don't have proper governance themselves. There are real risks that the chairs of boards in law firms. Also KPMG's experience suggests that great people like Jane Hemstrich and also having Mike Baird proved to be insufficent without having a deeper understanding of the integrity risks in the 'Big Four'. These firms are not as simple as ASX companies. Be interesting to know who the search firm is.