An inquiry into the quality of audits has fallen short of recommending the breakup of the largest four vertically integrated accounting firms in a bid to combat conflicts of interest.

The Regulation of Auditing in Australia: Final Report, tabled in Parliament on November 11, made 10 recommendations on how the quality of audits in Australia can be improved.

Some of the issues the Parliamentary Joint Committee on Corporations and Financial Services delved into included looking at potential conflicts of interests that arise in providing both auditing and consulting services, as well as how effective auditors are in detecting and reporting fraud and misconduct.

The final report recommended audit firms establish defined categories and disclosure fees received for audit and non-audit services, as well as list non-audit services they are explicitly prohibited from providing to an audited entity.

The auditor's independence declaration should be expanded to require the auditor to specifically confirm that no prohibited non-audit services have been provided, the committee found.

University of Melbourne professor Allan Fels commented that conflicts of interest should not exist by prohibiting the big firms - Deloitte, EY, KPMG and PwC - from providing consulting work for firms they audit.

"If that auditor is also performing services for the person they're auditing, there may be a conflict of interest—they may be compromised—because they want to continue providing those profitable services, and that could be threatened with unfavourable audits," he said.

The inquiry concluded that "regulators simply don't have the resources to identify, let alone prevent, the myriad of ways that globally dominant vertically integrated firms benefit from providing a comprehensive package of services to large, multinational corporations".

Combatting the lack of independence would mean that the "Big-4 must simply be broken up".

The Chartered Accountants Australia and New Zealand welcomed the recommendations.

"We called for a more integrated and consistent approach to how Australians are covered for risks such as fraud, misconduct and corporate failure in not only auditing but also management and governance, and we're pleased this bears out in many of the recommendations," the professional body said.