Australia's biggest audit firms have agreed to lift their game after the corporate regulator issued a "final warning" to improve quality.
In December, the Australian Securities and Investments Commission released an inspection report showing the quality of audits produced by large and small firms had worsened considerably since January 2011.
Of the 20 firms inspected, the report found 18 per cent of the 602 audit areas reviewed did not perform all the procedures necessary for a "reasonable assurance" that an audited financial report was not "materially mis-stated".
It also found auditors were not being sceptical enough when looking at companies' books and were relying too heavily on the work of other auditors.
ASIC confirmed on Thursday that Australia's six biggest auditors - PwC, KPMG, Ernst & Young, Deloitte Touche Tohmatsu, Grant Thornton and BDO - had agreed to prepare "action plans" to improve the quality of their audits.
The firms will focus on areas such as the "level of professional scepticism" and "appropriateness of audit evidence".
However, the action plans - which the firms will implement and monitor themselves - will not consider the issue of rotating auditors to help maintain independence.
Analysts have warned that audit firms getting too close to companies is an industry-wide problem.
ASIC commissioner John Price told a parliamentary joint committee in March that mandatory rotation "should be considered".
"[But] I do not think ASIC has specifically said we think mandatory auditor rotation should be introduced," Mr Price said.
The issue was being discussed in Europe, he said, and any decision would have consequences for Australia's largest firms, which operate in a global environment.
"We need to be very mindful of what is happening in overseas jurisdictions ... that could clearly cause problems for the Australian market if a number of jurisdictions were to go one way and Australia was doing things another way."
Liz Stamford, head of audit policy at the Institute of Chartered Accountants, said ASIC recognised firms already worked hard to improve their audits.
"The fact that the focus of ASIC [is] on working with the firms and recognising that the firms do a lot of work in this space ... is very welcome," she said.
The firms will implement key aspects of the plans for audits for the year ending June 30.
ASIC will review each firm's initial progress in January and February 2014.