Major Australian Banks and the Complex Landscape of Corporate Audits
As previously reported by Banking Day, the major Australian banks oversee some of the largest and most complex corporate audits in the southern hemisphere. The big four banks, namely ANZ, Westpac, National Australia Bank (NAB), and Commonwealth Bank (CBA), typically spend between $20 million and $35 million each year on external auditor remuneration. This figure does not take into account the additional millions spent on other assurance and advisory services. In total, it’s estimated that these banks pay a staggering $1 billion annually to the accounting big four.
Audit Partnerships and the Implications of Change
KPMG, one of the leading names in the auditing industry, currently audits major Australian banks like ANZ Bank and Westpac. KPMG has been ANZ’s external auditor since 1969, while Westpac switched from PwC to KPMG in 2024. NAB and CBA are audited by EY and PwC, respectively, with EY also auditing Bendigo and Adelaide Bank since 2002. PwC has been the auditor of Macquarie Group since 1993, but KPMG is set to take over from FY28, pending regulatory and shareholder approvals.
Rules and Guidelines Governing Audits
ASX guidelines and ASIC’s RG 187 codify guidance under section 324DA of the Corporations Act for auditor rotation for public companies, listed schemes, and APRA-regulated superannuation funds. These guidelines require lead audit partners to rotate every five years, with a mandatory ‘cooling-off’ period of two successive financial years following rotation. This is designed to prevent overly familiar relationships and maintain objectivity.
The Importance of Trust and Integrity in Auditing
The Australian Institute of Company Directors (AICD) emphasises the critical role external auditors play in corporate governance and investor confidence. Robust board oversight, auditor independence, and rigorous periodic reviews are essential for ensuring high-quality financial reporting. However, KPMG’s dominant position in the auditing landscape may be threatened due to recent reputational fallout and internal turmoil. Trust in the audit plan and KPMG’s operational ability to supply sufficient staff for auditing a financial institution may now be in doubt.
The Potential Ripple Effects of Audit Disruption
With the end-of-financial year rapidly approaching, banks and other regulated entities must prepare, review, and publish their financial accounts. In addition, they must report prudential data to APRA. KPMG’s current state of flux poses a critical risk for these institutions. Under ASX listing rules, publicly quoted entities must report their preliminary final results within two months, and audited accounts within three months, of their balance date.
The Importance of Independent Review in Risk Management
Beyond the realm of financial accounting and auditing, KPMG’s turmoil may also impact banks who rely on the firm for the annual independent review of risk management frameworks under APRA’s prudential standard CPS 220 on Risk Management. CPS 220 reviews can only be performed by ‘operationally independent, appropriately trained, and competent’ individuals. If an external firm provides these assurances, they must be ‘independent’ of the firm’s statutory financial audit lead and team to avoid conflicts of interest.
Conclusion
In conclusion, the audit landscape of Australia’s big banks is complex and highly regulated. The potential disruption of KPMG’s audits due to internal and external issues could significantly impact these banks and other regulated entities. However, it’s crucial to remember the importance of trust and integrity in the auditing process. It’s these qualities that ultimately uphold the standards of corporate governance and investor confidence in the banking industry.
