(Bloomberg Law) -- The Australian arm of PricewaterhouseCoopers has pledged to boost its corporate governance controls in response to firm-commissioned reviews faulting its culture for a leak of government tax plans.

The tax leak scandal has shaken the country’s consulting and auditing industry since it became public in January. Here’s a rundown of what’s happened so far and what may come next.

How did we get here?

In 2016, the Australian Taxation Office began a formal investigation into a PwC Australia tax minimization ‘foreign partnership structure’ it had presented to clients.

After facing legal blocks to its investigation and a lack of response from PwC’s Australia office to its concerns, in 2021 the tax office asked the Tax Practitioners Board, the regulator, to investigate the firm’s then-international tax chief, Peter-John Collins.

A board investigation found Collins had shared with colleagues and clients confidential information from meetings with Treasury officials about the country’s 2015 law targeting tax avoidance by multinational companies. He was suspended in January for two years.

The board’s action against Collins sparked a Senate inquiry which found PwC had “engaged in a deliberate strategy” to cover up the leak and its partners’ plan to monetize it. Treasury subsequently referred Collins and PwC to the Australian Federal Police for criminal investigation.

The firm responded by asking business executive Ziggy Switkowski and top law firms to examine how the leak had occurred and the firm’s wider approach to conflict management.

What happened most recently?

PwC Australia published the Switkowski report, which identified serious governance, structural, and cultural problems, and made recommendations for remediation.

The firm issued another report summarizing how confidential Treasury information was misused. This fact-finding report was based on reviews PwC requested from law firms King & Wood Mallesons and Allens.

PwC also asked international law firm Linklaters to examine information-sharing by the firm’s Australian arm with other firms. Linklaters found “no evidence” that PwC personnel outside of Australia used confidential information from PwC Australia for commercial gain, the firm said in a Sept. 27 statement. Full details of this assessment have not been released.

Ahead of the reports’ publication, PwC Australia announced its commitment to overhauling governance via several measures.

What did we learn from the PwC-commissioned reports?

Switkowski’s report found a number of PwC Australia governance, culture, and accountability failures, including:

• a lack of independence and external ‘voices’ on the firm’s governance board
• excessive power conferred on the CEO
• a disproportionate focus on revenue growth
• unclear responsibilities and accountability
• overly collegial culture that may have contributed to tolerating poor behavior by partners that brought in high revenues

The separate fact-finding report PwC put together with the assistance of law firms found governance shortcomings had contributed to an environment within the international tax practice “where pressure to perform was paramount,” with “insufficient regard” for confidentiality obligations and potential conflicts of interest.

In its published commitments to change, PwC Australia agreed it had allowed the CEO too much power, failed to hold leadership to account, and lacked transparency in communications with its board and wider partnership. Its highly collegial culture had a “shadow side” that fueled overconfidence in decision-making and a reluctance to share bad news, the PwC Australia reforms-focused publication said.

What action has PwC Australia pledged?

PwC Australia is overhauling its board with new non-executive appointments and an independent chair. The firm also is giving the board a mandate to appoint and remove the CEO, its commitments publication said.

Traditionally firm partners have elected the CEO, while the board chair was selected from partners on the board.

By September 2025, the firm will begin publishing annual audited financial statements.

PwC Australia also plans to appoint an external chief risk officer and build “a more mature” risk management approach, it said. That includes formalizing its leadership team’s responsibility for decision-making and risk management.

The firm intends to adopt a recommendation from Switkowski related to partner pay packages, by introducing minimum standards to qualify for increases. The standards would include demonstrated ethical behavior and adherence to the firm’s values. There would be “significant visible consequences” for breaching these standards, PwC Australia said in its response report.

PwC Australia’s “issues reporting process” will be expanded to capture and manage all ethics-related matters, including those raised by whistleblowers, the firm’s report with laws firms noted.

What happens next?

The Australian government continues to take a hard line on the tax leaks issue amid a number of ongoing inquiries. In September, Treasurer Jim Chalmers released draft changes to tax laws to crack down on tax avoidance schemes by making them unprofitable.

The government also would consider broader regulation of the audit and advisory industry, Chalmers said in an interview Sept. 28.

Tax law changes that would give more powers to regulators and increase penalties for tax avoidance schemes are expected to be tabled in Parliament in 2024.

Switkowski’s recommendations were modest compared to PwC’s misconduct, Sen. Deborah O’Neill, a leader of the related lawmaker inquiry, said in a Sept. 27 statement. O’Neill remains unconvinced the firm’s announced reforms are sufficient, she said.

The senate inquiry will hold more hearings in October and is due to report its findings Nov. 30. A Joint House Corporate and Financial Services Committee inquiry into consultant and accounting firms has not yet begun hearings. A New South Wales parliamentary inquiry into consultants is due to report later this year.

The Australian Federal Police inquiry into the leak is continuing.

To contact the reporter on this story: Deborah Nesbitt in Canberra, Australia, at correspondents@bloomberglaw.comTo contact the editors responsible for this story: Rose Walker at rwalker1@bloombergindustry.com; Andrea Vittorio at avittorio@bloombergindustry.com; Jeff Harrington at jharrington@bloombergindustry.com