EY Australia calls for partnership disciplinary board in submission to Parliamentary Joint Committee

The firm wants a comprehensive overhaul of the regulation of professional services to improve transparency and accountability after a scandal-plagued year for the sector.

EY Australia is calling for a comprehensive overhaul of the regulation of professional services to improve transparency and accountability, while creating a common set of ethical standards.

In its submission to the parliamentary joint committee on corporations and financial services, the major consulting and auditing firm said reform of the sector would be a key step in rebuilding public trust and confidence.

The four major professional services firms – EY, Deloitte, KPMG and PwC – have come under increasing scrutiny by regulators and government since the PwC tax advice scandal, where confidential government information was used to devise strategies to help clients minimise tax. A Senate inquiry found PwC engaged in “a calculated breach of trust” and “deliberate strategy over many years to cover up the breach of confidentiality and the plan by PwC personnel to monetise it”.

EY wants the government to restore trust in the sector by bringing large partnerships with $50m in revenue or more than 100 partners under federal legislation.

Through this, the government would be able to “implement financial transparency and disclosure requirements, as well as a new mechanism to prevent misconduct and unethical behaviour and to sanction those that breach the high levels of ethical and professional conduct we expect”.

EY Oceania chief executive and managing partner David Larocca told The Australian its submission put forward a “bold agenda” to improve the transparency and accountability its profession.

“Whilst well-regulated, professional services firms currently operate in a fragmented state-based regulatory environment, where the Commonwealth has limited ability to prevent and ­prosecute cases of misconduct when they arise,” he said.

“The government has a historic moment to provide the Commonwealth with oversight of large partnerships.”

EY has also asked that the government to create a partnership disciplinary board. Such a panel would have had the power to investigate and discipline partners caught up In the PwC tax scandal.

EY said the interests of its clients and the public were well protected by its policies and procedures and regulation from 33 different regulatory bodies and agencies.

“However, the fragmentation of the approach that has developed organically over the past decade is one of the reasons we support greater Commonwealth oversight through a single regulator to oversee and co-ordinate the regulatory framework for partnerships and indeed all professional services providers, regardless of their structures,” its submission said.

Mr Larocca said EY was proposing a unified regulatory environment with a strong regulator to oversee the activities of large partnerships and hold them accountable.

“We have also shared evidence-based proposals for establishing a consistent, industry-wide framework for transparency of information, including executive remuneration, across the sector,” he said.

It comes after Deloitte said a review of the professional services regulation should look at creating common definitions of a “fit and proper person” in the interests of having consistent rules for regulated professions.

EY maintained that APES 110, the code of ethics for professional accountants, was effective at managing conflicts of interest, “even when a provider only services one sector of the economy”.

The firm said that it was important for the parliamentary committee to understand what “constitutes non-audit services provided to audit clients, given the erroneous public statements that have been made”.

“Auditors are prohibited from providing a large range of services to audit clients and it is prohibited for audit partners to sell non-audit services or be incentivised to do so,” EY said in its submission.

This followed the Regulation of Auditing inquiry hearing evidence from EU and witnesses from other large firms that audit was not a “loss leader” for non-audit services and that little to no consulting services were provided to audit clients.

EY said that of the fees earned from recent ASX300 audit clients, 70 per cent were for audit services and 30 per cent for non-audit services. Non-audit services accounted for 2 per cent of its revenue in the 12 months to June 30, 2022, according to firm.

EY reported record global revenue of $US49.4bn ($76.7bn) in the 12 months to June 30, 2023, up 14.2 per cent from the prior year. That result included $2.97bn from the Australian arm.