In short
In July, the Australian Securities and Investments Commission (ASIC) took the auditor of First Guardian to the Federal Court. The managed investment fund’s 2025 collapse left more than 6,000 investors facing losses that liquidators have put at up to AUD 446 million, and ASIC alleges that the auditor issued unqualified opinions while leaving around AUD 137 million and then AUD 170 million of reported assets untested. The same month, Canada’s audit regulator censured EY-Canada for quality control failures after more than 500 professionals shared answers on internal training assessments, and in April Hong Kong’s regulator had fined PwC HKD 300 million over its Evergrande audits and, for the first time, barred a firm from taking on new public-interest audit clients for six months. The cases raise questions about three safeguards: whether commercial incentives compromise professional conduct, whether firms’ internal controls catch and correct weaknesses, and whether firm leaders can be held accountable for decisions that shape audit quality. Reforms advanced across Asia-Pacific, the Middle East, Europe and North America over 2026, and particularly in the third quarter, work on these firm-level levers: the audit experience required of those who run firms, the weight of quality in partners’ pay, the decision to accept or keep a client, the rigour of internal file reviews, and the quality information reaching audit committees and investors. Australia’s Treasury goes furthest, with a July options paper canvassing 17 options, from ASIC licensing of audit firms and structural separation of audit from consulting to independent boards and civil penalties for firms.
Persistent audit weaknesses and failures of internal oversight prompt closer regulatory scrutiny
Recent misconduct cases and supervisory reviews have raised questions about the safeguards underpinning external audit: whether commercial incentives compromise professional conduct, whether internal controls identify and address weaknesses, and whether firm leaders can be held accountable for decisions affecting audit quality.
In Australia, the 2025 collapse of First Guardian, a managed investment fund, exposed more than 6,000 Australians to potential losses, which liquidators have warned could reach A$446 million. In July 2026, the Australian Securities and Investments Commission (ASIC) commenced Federal Court proceedings alleging that the fund’s auditor, Auditeo, had issued unqualified audit opinions without performing the required work, including leaving approximately AUD 137 million of reported assets entirely untested in the 2022 financial year and around AUD 170 million in 2023. The allegations remain before the Court, which has referred the matter to mediation. Separately, in May 2026 KPMG Australia acknowledged that client documents had been inappropriately shared internally and that its treatment of a whistleblower, and its investigation of their allegations, had fallen short. In September, ASIC Chair Sarah Court told a parliamentary committee that ASIC was investigating the alleged misuse of confidential client information, whistleblower victimisation concerns and the firm’s auditor transparency reports.
In Hong Kong, the Accounting and Financial Reporting Council (AFRC) fined PwC HKD 300 million in April 2026 over its audits of China Evergrande Group for 2019 and 2020, and fined two former partners responsible for engagement quality review and the firm’s quality control system HKD 5 million each. It also barred the firm for six months from accepting public-interest entity audit engagements from new clients, the first such limitation the AFRC has imposed. The AFRC found that the audit team had disregarded evidence from its own site visits that properties were still under construction, had knowingly permitted unsupported consolidation adjustments to be recorded despite being aware of management’s intention to manipulate results to meet profit targets, and had allowed management to swap and select the sites to be inspected.
In Canada, a July 2026 settlement order from the Canadian Public Accountability Board (CPAB) publicly censured EY-Canada for quality control failures linked to widespread cheating on internal training assessments. More than 500 current and former professionals, including two partners, shared answers, mostly between 2017 and mid-2020. Although the firm knew as early as November 2019 that the network’s US firm was investigating similar conduct, it did not evaluate the effectiveness of its anti-cheating controls, or monitor for cheating, until 2024. EY-Canada settled without admitting or denying the findings.
Against this backdrop, authorities have stepped up scrutiny of audit firms and advanced reforms to strengthen their governance, professional capability and accountability. The measures seek to safeguard independence, improve how firms identify and correct audit weaknesses, and provide greater transparency over audit quality and inspection findings. Over the course of 2026, and particularly in the third quarter, jurisdictions across Asia-Pacific, the Middle East, Europe and North America advanced initiatives ranging from reform proposals and revised requirements to changes in supervisory practice.
Reforms strengthen audit firm capability, governance and quality management
The reforms address the concerns outlined above through a mix of revised registration and accreditation rules, governance proposals and more detailed supervisory guidance. They extend beyond the qualifications of individual auditors to the decisions, incentives and controls that shape audit quality across a firm. These include how leadership balances profitability against quality, how independence is safeguarded when clients are accepted and retained, and how firms test their own work and correct the weaknesses they find. Several measures also give audit committees and investors better information on the quality of the firms providing assurance.
Experience and professional capacity
Registration and accreditation reforms place greater emphasis on practical audit experience and the resources available to undertake engagements. The requirements address whether senior leaders have direct external audit experience, whether firms employ sufficient qualified staff for the complexity of their work, and whether applicants for accreditation can demonstrate a relevant track record.
South Korea
Proposals published for consultation by the Financial Services Commission in July would require chief executives of firms registered to audit listed companies to have at least seven years of external audit experience, and quality management directors at least five years. The proposals would tighten existing eligibility criteria, under which chief executives can qualify through ten years of broader accounting-related experience.
Saudi Arabia
Amendments published by the Capital Market Authority in September require registered firms to employ sufficient audit managers holding the Saudi professional fellowship qualification or an accepted equivalent. Staffing must be proportionate to the nature, scale and complexity of the firm’s activities.
Philippines
Revised accreditation rules issued by the Securities and Exchange Commission in September raise the track-record requirement for the highest category of external auditors to five corporate clients with assets of at least PHP100 million each, compared with PHP50 million previously. They also bring large government contractors within the accreditation framework: contractors with a single government contract above PHP750 million, or cumulative contracts above PHP1 billion, must engage auditors in the highest category for financial periods ending on or after 30 June 2027.
Governance and commercial incentives
Governance initiatives address how responsibility for audit quality is exercised within firms and how commercial objectives influence decisions on resources, performance assessments and remuneration. Proposals for independent oversight seek to strengthen scrutiny of management decisions where profitability and audit quality may compete. Alongside these proposals, supervisory guidance calls for firms to demonstrate that quality meaningfully influences financial rewards and to assess whether their remuneration policies operate as intended.
South Korea
The July proposals would require large audit firms in the highest regulatory category to establish an audit quality supervisory committee. Independent external experts would form a majority of its membership and hold the chair. The committee would oversee whether management is prioritising profitability at the expense of audit quality and would monitor related significant decisions in advance.
Netherlands
Following a March review of remuneration policies at the six firms licensed to audit public-interest entities, the Authority for the Financial Markets called for audit quality to have a demonstrably decisive influence on variable remuneration. It identified as good practice a minimum 60% weighting for quality-related criteria in the performance assessments and bonuses of directors and salaried partners, and observed that for equity partners quality was an important factor but rarely a demonstrably decisive one.
Independence and engagement acceptance
Measures to safeguard independence focus on firms’ decision process for taking on and retaining clients. Besides checking for conflicts of interest, audit firms must assess the client’s integrity and their own capacity to do the work, document their judgements and revisit them as circumstances change. The measures also attach clearer consequences to independence failures when auditors compromise their objectivity, for example by auditing work they prepared themselves.
Norway
Updated guidance from Finanstilsynet, published in July, states that financial or operational considerations must not compromise decisions to accept or continue an audit engagement. Before accepting a client, firms must ask the previous auditor whether there are matters that weigh against taking on the engagement. They should document their decisions and reassess each engagement annually, early enough to avoid pressure to stay on. They must also withdraw where a client fails to correct significant legal breaches identified during the audit.
Philippines
The revised accreditation rules add nine grounds for refusing accreditation outright, including failure to maintain independence, for example where an auditor directly prepared the financial statements being audited.
Quality management
Quality management measures target the arrangements through which audit firms monitor and improve their own work. Firms must design their internal reviews of completed audits to reliably detect work that falls short of professional standards. When these reviews uncover weaknesses, firms must take corrective action and demonstrate that it has resolved them.
Saudi Arabia
Registered firms must maintain an appropriate quality management system for annual audits and interim reviews. Where the Capital Market Authority’s inspection of a firm’s audit work or quality management system requires remediation, the firm must submit a corrective action plan within the specified timeframe, obtain the authority’s approval and implement the agreed measures.
Netherlands
Following its July review, the Authority for the Financial Markets called on firms to make their internal reviews of completed audits less predictable. It recommends that firms record why each audit is selected for review, and highlights as good practice selecting partners at random and drawing on all files archived over the preceding 12 months. Firms should then inform audit teams of the selection only once the audit file has been archived and can no longer be changed.
Canada
A July settlement order concerning the integrity of internal training assessments at EY-Canada illustrates the use of independently verified remediation. The Canadian Public Accountability Board required the firm to appoint an external consultant to oversee and assess its revised controls. The effectiveness of the controls must be demonstrated over at least two consecutive quarters, with the results verified by the consultant.
Audit execution and documentation
Authorities are tightening requirements for how individual audits are performed and evidenced. They set clearer expectations for the work behind audit conclusions, particularly where auditors rely on clients’ controls or face fraud risks, and require audit files to document that work so that it can be reviewed later. Accreditation decisions are also being tied more closely to the quality of firms’ past audit work.
Norway
Following a May thematic review of how 15 audit firms address fraud risk, Finanstilsynet made clear that auditors must verify how a client’s controls work rather than rely on what staff tell them. Controls relied on to address a significant fraud risk must be tested for the year under audit, and procedures should vary so they cannot be anticipated. Audit files should also document the risks identified, the procedures performed in response to these risks and the conclusions reached.
Oman
The Financial Services Authority, which took over regulation of the accounting and auditing profession in 2024, has stepped up its oversight of audit firms. In August, it suspended an audit firm for six months after inspections found that its audit opinions lacked sufficient and appropriate evidence, that planning, materiality and the accumulation of misstatements had not been properly addressed, and that it had not performed the procedures needed to verify the physical existence and condition of inventory. The firm had also offered its licence for rent through an online platform, and its owner had not signed most of the audit reports it issued.
Philippines
Accreditation can be refused where an auditor has issued an unqualified opinion despite the client’s use of an incorrect accounting framework resulting in material misstatements, or where the SEC’s review finds six or more material deficiencies in a single set of financial statements the applicant audited. Applicants for the two highest categories qualify for five-year accreditation only if that review finds no material deficiencies.
Transparency and the use of audit quality information
Transparency requirements are giving those who appoint and oversee auditors better information on audit quality. Audit firms must publish more about their governance and quality management, and regulators are publishing the results of their inspections of individual firms. Audit committees, which oversee the external audit on behalf of a company’s board, are also receiving the findings when a regulator inspects their company’s audit. In jurisdictions where regulators, rather than the companies themselves, select the auditor for certain companies, proposals would make audit quality a more important factor in deciding which firm is appointed.
Saudi Arabia
Amended rules require registered audit firms to disclose more in their annual transparency reports, including their legal form and network affiliation, the names of those responsible for overseeing and operating their quality management system, and the outcome of the firm’s annual evaluation of whether that system is properly designed and operating effectively. Where the Capital Market Authority inspects the audit file of a listed company, the audit firm must pass the authority’s final inspection results to that listed company’s audit committee within ten days of receiving them.
Canada
Since March 2026, the Canadian Public Accountability Board has published inspection reports on individual audit firms, giving investors and audit committees firm-specific inspection results for the first time. In addition, when the Board inspects a particular company’s audit, the audit firm must share any significant findings with that company’s audit committee.
United Arab Emirates
In July, the Dubai Financial Services Authority reported that auditors of listed companies in the Dubai International Financial Centre had published their first transparency reports under its rules, disclosing their governance, quality management systems and internal culture. The DFSA is the first audit regulator in the UAE to require such disclosures.
South Korea
The regulator assigns auditors to certain listed companies, and only the largest audit firms can currently be assigned to large listed companies. The July proposals would open these assignments to mid-sized firms with top audit quality scores, provided they hold additional liability coverage, and would widen the gap in designation scores between firms with strong and weak quality assessments.
Supervision adapts alongside the requirements
Supervisory practice is evolving alongside the new requirements. Authorities are engaging more directly with auditors, deepening cooperation with fellow regulators and placing greater emphasis on enforcement. In Australia, ASIC announced in July that it will hold twice-yearly meetings open to all registered company auditors to discuss its priorities, findings and good practice, and to hear about emerging issues. In Hong Kong, the SFC and the AFRC signed a memorandum of understanding in September that extends their cooperation from listed entities to licensed firms, virtual asset service providers and authorised funds, and provides a framework for information sharing, case referrals and coordinated inspections and investigations. In the United States, the Securities and Exchange Commission established a Financial Reporting and Accounting Unit within its Enforcement Division in August, combining legal and accounting expertise to pursue financial reporting fraud, accounting violations and audit misconduct.
Australia advances a broad review of audit regulation
Amid the series of misconduct cases and alleged audit failures, Australia is weighing a particularly broad set of changes to audit regulation. At the centre of the reform debate is a Treasury review of how audit firms are regulated, governed and held accountable. The review has its origins in 2023, when the government commissioned Treasury to examine the regulation of accounting, auditing and consulting firms in the wake of the PwC tax leaks scandal, in which confidential government tax information was misused. After an initial issues paper in 2024, Treasury published an options paper in July 2026, with submissions closing on 12 August. The paper sets out 17 options across six areas.
Ensuring accountability within the audit sector
Treasury identifies a gap between where decisions affecting audit quality are made and where legal accountability sits. Firm-level choices on controls, resourcing, remuneration and conflicts shape audit quality, yet audit partnerships cannot be meaningfully sanctioned for them. Only the lead auditor faces deregistration and criminal penalties, and ASIC has limited ability to enforce firm-level quality management standards. The first option would require entities that prepare financial and sustainability reports under the Corporations Act (reporting entities) to obtain audits only from ASIC-licensed firms. Ongoing licence conditions would cover quality management, ethics, governance, independence and the protection of confidential client information. For breaches, ASIC could impose further conditions, issue infringement notices, seek civil penalties, or suspend or revoke the licence. Related options would make professional-conduct obligations an ongoing condition of individual auditor registration and extend fit-and-proper requirements to all partners of audit partnerships, including those providing non-audit services.
Managing structural conflicts of interest
Combining audit with consulting can create structural conflicts of interest. Audit accounted for, on average, 20% of revenue at the four largest firms in 2025. Treasury notes that partners may be incentivised to soften findings to protect non-audit income, or may end up reviewing their own firm’s advice. Of three structural options, the first would prohibit reporting entities from engaging their auditor for non-audit services. The second would require operational separation of the audit practice within the firm, as in the United Kingdom, with its own chief executive and chair, governance board, remuneration linked to audit quality and public financial report. The third would permit reporting entities to obtain audits only from firms that offer no non-audit services. Treasury also seeks views on conflicts where firms advise government on policies and programmes while helping private clients navigate them.
Internal governance of audit partnerships
Partnerships set their own governance, relying on partners to hold each other to account; Treasury notes that recent events suggest this may not be happening. Partners’ fiduciary duties can be enforced only by other partners. Treasury also suggests that governance risks rise with size: accounting partnerships may have up to 1,000 partners, against 400 for legal practitioners. One option would require large audit firms to have a board with a minimum number of independent members, with key personnel subject to duties akin to directors’ duties, enforceable by ASIC. Another would lower the 1,000-partner cap and require a minimum share of partners to be registered to deliver regulated services such as audit, tax or insolvency work. A third would require reporting entities to obtain audits only from authorised audit companies. This would bring audit work under the existing regime for those companies, including directors’ duties, while still allowing them to sit within a wider multidisciplinary group.
Improving audit surveillance
ASIC, which sets its own level of audit surveillance, reviewed 58 audit files in 2018–19, 15 a year between 2022–23 and 2024–25, and 25 from 2025–26. Since 2022–23, it has also stopped attributing findings to individual firms. Treasury canvasses a mandated minimum level of surveillance, with review frequency potentially based on firm size and files selected on both a random and a risk basis. Firm-level findings would be published to help reporting entities choose auditors. Under the licensing option, ASIC would also review firms’ quality-management systems.
Enhancing disciplinary processes
ASIC can seek financial penalties against auditors only through criminal proceedings or infringement notices. The maximum fine for an individual auditor who fails to conduct an audit in line with auditing standards is AUD 87,360. ASIC cannot require a deficient audit report to be corrected, and auditors can avoid formal disciplinary findings by deregistering. Treasury canvasses civil penalties for individual auditors, audit companies and audit partnerships, with a possible higher tier for entities with turnover of at least AUD 1 billion. This tier would draw on an existing regime whose maximum penalty is the greatest of AUD 18.2 million, three times the benefit obtained, or 10% of turnover capped at A$910 million. ASIC could also gain powers to require remediation of deficient audits, including through supplementary procedures or independent reviews, to remove firms from engagements where issues remain unaddressed, and to publish audit-deficiency reports immediately. The Companies Auditors Disciplinary Board, the specialist tribunal that can suspend or cancel auditor registrations, could be empowered to deal with the past conduct of auditors who have since deregistered, to impose interim suspensions and to ban individuals from audit work, including as employees of audit firms.
Increasing competition in the audit market
The audit market for large listed companies is highly concentrated, with the four largest firms auditing around 96% of the top 200 entities in 2022. Because rotation rules apply only to individual auditors, a firm can remain auditor indefinitely; average audit-firm tenure among the top 200 was 13.2 years. Reporting entities are currently required neither to tender their audits nor to disclose tenure. Of three options, the first would require reporting entities to disclose audit-firm and lead-auditor tenure and their most recent tender date in their annual reports. The second would require public tendering every ten years. The third would require a change of audit firm after 20 years, although an entity that kept its auditor might instead be allowed to explain why in its annual report. Combined, tendering and rotation would be consistent with the approach in the United Kingdom and the European Union.
Alongside these broader reforms, ASIC stepped up oversight within its existing powers. In July, it reinforced its expectations in a dedicated letter to all registered company auditors, restating their core obligations: to act independently, to give ASIC accurate and timely information, to report contraventions, including attempts to interfere with an audit, and to comply with the profession’s ethical code. In parallel, it began a separate surveillance of internal complaints, including potential whistleblower complaints, received by the Big Four firms about their audit practices, and said it expected to provide an update by the end of the year. Enforcement also extended to individual practitioners: between January and June 2026, ASIC acted against 36 auditors of self-managed superannuation funds (SMSFs) for breaches including failures of independence and non-compliance with auditing standards. SMSFs are member-run retirement funds that together hold more than AUD 1 trillion in assets.
Institutional change is also under way on the standard-setting side. Legislation passed by Parliament at the end of June, and given Royal Assent in early July, will merge the Financial Reporting Council, the Australian Accounting Standards Board and the Auditing and Assurance Standards Board into a single body, External Reporting Australia, responsible for financial reporting, sustainability reporting and auditing and assurance standards from 1 December 2026. Treasury notes that the new body’s governance framework could accommodate additional standard-setting functions, such as a professional conduct standard for auditors should that option be pursued.