John Connolly's side were convincingly beaten 32-12 by New Zealand last weekend and Flatley, who retired from the game earlier this year on the advice of medical staff, was particularly disappointed with Australia's defence in Christchurch.
However, the former Queensland Red predicts the Wallabies can right the wrongs of last Saturday and kickstart their campaign with a win against South Africa in Brisbane this weekend.
"(Defence coach) John Muggleton came out and said the defence wasn't up to scratch (against the All Blacks) and he's got a good point there," Flatley said.
"The forwards are probably a little bit disappointed in some of their play - they just didn't have a good night.
"The good thing about rugby is that they get that opportunity again this Saturday, and then in two weeks' time against the All Blacks again, so I think you'll find a different team on Saturday.
"I think you'll find the Wallabies get up in the next two games."
Flatley is confident new coach Connolly has the credentials to help Australia recover their form.
"'Knuckles' is a very good coach - he's been very successful wherever he's been, in Queensland and throughout the world," he added.
"It's a pretty intensive job. His whole purpose is producing a very good team for the World Cup.
"He's very street-smart and knows what rugby at that level is all about."
The 38-Test veteran believes the Wallabies may have been given false confidence after their victories over England and Ireland in the lead-up to the Tri-Nations.
"The three previous games weren't the same standard as the one against the All Blacks, so maybe they were caught on the hop a little bit there, but we'll know in two weeks' time when they face the All Blacks," he said.