The Big 4 Should Be Broken Up. The Case Is Closed.
The audit-consulting wall has never held. At any firm. In any country. We watched it fail from the inside.
In 2023, PwC partner Peter Collins was found to have shared confidential Australian government tax intelligence with dozens of partners and staff across the firm. In 2026, KPMG Australia’s chairman admitted that confidential Optus information had crossed the firm’s “ethical divider” into a team pitching for rival Telstra’s audit. In both cases, confidential information crossed internal walls that were supposed to be impenetrable, because the financial incentive to share it was stronger than the compliance incentive to contain it. At KPMG, the firm’s first instinct was to investigate the whistleblower rather than the conduct he reported: his laptop was searched, he was denied a pay rise, had client work removed, and was threatened with dismissal. And at both firms, the “one bad apple” defence collapsed under the weight of evidence showing that the information sharing was widespread.
Two firms, same country, same failure mechanism. Three years apart.
We are supposed to believe this is a governance failure. That better policies, stronger internal walls, more robust (there’s a word the firms love) compliance training will prevent it from happening again. We spent a collective 170 years inside these institutions. We sat in the meetings where information that should have stayed behind the wall was shared casually, because the partner sharing it was trying to win a pitch and the information made the pitch stronger. We signed the compliance attestations and watched them being ignored. The wall is not weak. The wall is fictional. And the fiction persists because it is profitable.
The Big 4 should be broken up. Audit and consulting should be separated, fully and permanently, at every firm, in every jurisdiction. The argument for maintaining the combined model has been exposed as intellectually bankrupt by the firms’ own conduct. We are not going to hedge that position, because the evidence does not support hedging.
The incentive problem that no policy can fix
The audit-consulting conflict is simple to describe and impossible to resolve within a combined firm. An auditor’s job is to provide an independent opinion on whether a company’s financial statements are accurate. Independence requires that the auditor has no financial interest in the client’s commercial success beyond the audit fee. When the same firm that audits a company also advises that company on strategy, technology, tax structuring, and operational improvement, the auditor has a direct financial interest in keeping the client happy. The advisory fees dwarf the audit fees. A partner who irritates the client with tough audit findings jeopardises the consulting relationship that pays for the partner’s bonus, the practice group’s headcount, and the firm’s growth targets.
This is not a hypothetical risk. It is the operating reality of every combined Big 4 firm, and it has been for two decades.
In 2023, the Big 4 generated $66.5 billion from audit and assurance services. They generated $95.4 billion from advisory and consulting. Advisory revenue exceeded audit revenue by 43%. At Deloitte, consulting alone generated more revenue than the entire audit practice of any other Big 4 firm. The economics are lopsided enough that audit has become, in effect, a loss leader: the mandatory, regulated service that gets the firm through the door, where the fees multiply through advisory work sold to the same client.
We have watched this dynamic play out from the inside of partner compensation meetings. The audit partners who bring in the highest-value clients are the ones whose clients also buy consulting services. The partner whose audit client generates $2 million in audit fees and $8 million in advisory fees is a more valuable partner than the one whose client generates $3 million in audit fees and nothing else. Everyone in the room understands this. Nobody says it aloud, because saying it would make the conflict of interest explicit. So the compensation formula rewards “client relationship management” and “cross-service integration” and other euphemisms that mean the same thing: the audit partner who feeds the consulting pipeline gets paid more.
No compliance policy can survive that incentive structure. The firms have tried. They have created ethical walls, Chinese walls, information barriers, ethical dividers (KPMG Australia’s preferred term for the one that failed). They have appointed chief ethics officers and built compliance training modules and required annual attestations. All of it amounts to a policy document that asks individual partners to act against their own financial interest, against the firm’s cultural expectations, and against the implicit rewards that determine their compensation. When the policy conflicts with the incentive, the incentive wins. Every time. At every firm. The only variable is whether someone reports it.
The evidence the firms produced against themselves
Arthur Andersen earned more from consulting fees to Enron than from auditing Enron’s books. When the fraud was exposed in 2001, the firm’s Houston office shredded documents. Andersen was convicted of obstruction of justice in 2002; the conviction was later overturned by the Supreme Court, but by then the firm had already surrendered its licences and ceased to exist. The surviving firms began shedding their consulting practices even before Congress passed Sarbanes-Oxley in mid-2002. Ernst & Young’s consulting practice went to Capgemini in 2000. KPMG Consulting was spun off in 2001 and eventually became BearingPoint. PwC’s consulting arm was sold to IBM in 2002. Deloitte was the only firm that did not complete a full divestiture of its consulting business. Sarbanes-Oxley then reinforced the separation by restricting the non-audit services that audit firms could sell to audit clients.
Within a decade, every firm that had divested its consulting practice had rebuilt one. By 2015, advisory revenue had surpassed pre-Andersen levels. The Sarbanes-Oxley restrictions applied only to services sold to audit clients, and the firms worked around them by expanding advisory services to non-audit clients, building the consulting revenue base until it once again dominated the firm’s economics. The cycle completed itself in less than fifteen years.
Since then, the evidence has accumulated to the point where denial requires active effort.
PwC Australia: a partner advising the government on confidential tax legislation simultaneously shared that intelligence with PwC colleagues who used it to help multinational clients circumvent the laws PwC had helped write. Internal documents show the firm generated roughly $2.5 million advising 14 US companies on how to avoid the very rules its partner had shaped. When the Senate inquiry released internal emails, they showed that dozens of partners across the firm were aware of the information sharing. PwC eventually sold its government consulting division for A$1 and lost hundreds of partners and staff. Its FY2023-24 revenue dropped by A$820 million, with profits falling 24%.
KPMG Australia: staff used confidential Lendlease board papers and Optus data to pitch for audit contracts at Westpac, Dexus, and Telstra. The whistleblower who reported it had his laptop searched, was denied a pay rise, had client work removed, and was threatened with dismissal. KPMG has since been sidelined from new federal government contracts, its CEO resigned (reportedly collecting A$1.7 million in notice pay plus A$2.4 million in retirement entitlements), Lendlease ended a 68-year audit relationship, and the firm is preparing to cut over 1,000 jobs. Partner pay may drop by 20%.
EY and Wirecard: EY audited Wirecard for close to a decade, issuing unqualified opinions while €1.9 billion in cash balances probably never existed. The audit team failed to independently confirm the bank balances over multiple engagement cycles. Germany’s audit regulator APAS banned EY from taking on new public-interest-entity audits for two years.
PwC and Evergrande: Chinese regulators found that 88% of PwC’s project records were inconsistent with reality. PwC Zhong Tian was suspended for six months and fined the equivalent of $62 million. PwC lost more than 50 major clients, including Bank of China, Alibaba, and Tencent. Hong Kong regulators added a further $166 million in combined fines and compensation.
Every one of these failures occurred within a combined audit-consulting firm. Every one involved auditors whose independence was compromised, implicitly or explicitly, by the firm’s commercial interests. The pattern is consistent across firms, across countries, and across decades.
EY tried to solve it. EY proved it cannot be solved voluntarily.
In 2022, EY launched Project Everest, the most ambitious attempt to separate audit and consulting from within. The plan would have split EY into two independent entities: an audit-focused firm and a consulting-focused firm. It was, on paper, exactly the organisational reform that regulators and critics had been demanding.
It failed. The US executive committee refused to proceed, primarily because the partners could not agree on how to divide the tax practice (which serves both audit and consulting clients) and because the personal economics of the split would have reduced the income of the most senior US partners. The failure consumed roughly $600 million in costs and left EY carrying over $700 million in debt. The firm began cutting costs and laying off staff to recover. In the UK alone, EY has since set aside a record £188 million for fines and legal claims.
Project Everest is the single most important data point in this debate. The firm that tried hardest to resolve the conflict voluntarily proved that partnership economics make voluntary separation impossible. The partners who benefited most from the combined model had veto power over the split, and they used it. The conflict of interest that the split was designed to eliminate was also the force that killed it. If the firms cannot do this to themselves, someone else has to do it to them.
The counterargument, honestly engaged
The strongest case for maintaining the combined model is that separation would weaken audit quality rather than improve it. Auditors need access to specialists in technology, valuation, tax, and sector-specific expertise. A standalone audit firm, stripped of its consulting arm, would lose that bench of specialists. Smaller audit firms already have higher PCAOB deficiency rates than the Big 4 (the all-firm aggregate hit 46% in 2023, while the Big 4 US rate was 26%), in part because they lack the specialist resources that large, diversified firms can deploy.
This is a serious argument, and it deserves a serious answer.
The answer is that the audit arm does not need to be profitable on its own. It needs to be independent. Right now, it is neither. Sarbanes-Oxley permits audit firms to engage non-audit specialists for audit-related work. A separated audit firm can hire actuaries, IT specialists, and valuation experts as contractors or employees. The UK’s FRC operational separation framework, which all four firms completed implementing by June 2024, already allows audit practices to borrow expertise from other service lines within the same firm. The question is whether the audit partner’s compensation, career trajectory, and daily incentives are tied to the consulting revenue pipeline. In a separated firm, they are not. In a combined firm, they always will be.
PCAOB inspection data reinforces the case for separation. The Big 4 US deficiency rate jumped from 12% in 2020 to 26% by 2022 and 2023. It has improved slightly to 20% in 2024, but the direction over the past five years is clear: being large and combined did not prevent a deterioration in audit quality. It may have contributed to it, because the same institutional pressure to prioritise client relationships and revenue growth that drives the conflict-of-interest scandals also drives the corner-cutting that PCAOB inspectors flag.
The direction of travel
The UK moved first. The FRC’s 22 principles of operational separation, completed by all four firms in 2024, require audit practices to produce separate profit-and-loss accounts, operate with independent audit boards, and demonstrate that audit is not cross-subsidised by consulting. The FRC stopped short of a complete breakup, but the trajectory is unmistakable. The Competition and Markets Authority recommended operational separation, with full breakup as the backstop if it proved insufficient.
Australia is moving faster, propelled by two consecutive scandals. ASIC has opened a formal investigation into KPMG and widened scrutiny to audit-conduct complaints across all Big 4 firms. The Australian Treasury published a 56-page paper in July 2026 criticising behaviour from accounting, auditing, and consulting firms that, in the Treasury’s words, is “not fair and honest.” The government has announced it will strengthen ASIC’s powers over the Big 4, which are currently structured as partnerships outside ASIC’s direct supervision. New federal government contracts with the Big 4 dropped from A$637 million to A$348 million in a single year.
In the US, the Senate has held hearings on audit quality and Big 4 conflicts of interest. The PCAOB under Chair Erica Williams escalated enforcement sharply, with civil penalties reaching $11.9 million by November 2023 alone (up from $1.1 million in 2021). Williams has called the profession’s deficiency rates “unacceptable.” Whether the US will follow the UK and Australia toward mandatory separation depends on political will, but the regulatory consensus has shifted. A decade ago, operational separation was considered radical. Today, it is the moderate position. Full separation is the question being debated.
What we learned from the inside
We managed practices within these firms. We sat on the committees that reviewed audit quality. We participated in the partner compensation discussions where the cross-selling incentives were baked into the reward structure. We watched colleagues share information they should not have shared, win pitches they should not have won, and retain clients they should not have retained, because the consulting revenue attached to those clients made them untouchable.
We do not say this with satisfaction. Several of us built our careers in practices that benefited from the combined model. The cross-selling worked in both directions: audit relationships opened doors for consulting engagements, and consulting relationships generated audit referrals. The model was good for partner economics. It was bad for audit independence, and audit independence is the thing that justifies giving these firms the franchise to sign off on the financial statements that public markets rely on.
The firms will argue that separation is unnecessary, that internal reforms are working, that the compliance architecture has been strengthened, that the recent scandals are isolated incidents being addressed. They have been making this argument for 24 years, since Arthur Andersen. The compliance architecture has been strengthened repeatedly, and the same failures keep occurring, because the compliance architecture is addressing a symptom while the incentive structure is producing the disease.
We have 170 combined years inside these institutions. We have watched the cycle repeat three times: scandal, reform promise, policy adjustment, quiet reversion to the status quo. The only intervention that broke the cycle was the one that was never tried: separation.
It should be tried now. Voluntarily if the firms can summon the courage that EY’s partners lacked. By regulators if they cannot.
If you were designing the system from scratch, would you ever allow the same firm to audit a company and advise it? If not, why do we tolerate it now?