The Financial Reporting Council (FRC) in the UK has released a detailed guidance for audit firms on the use of generative and agentic artificial intelligence (AI) in audit work.
The document focuses on how firms can manage the risks to audit quality arising from the use of these technologies, while still securing the potential benefits.
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FRC noted that the guidance has been drawn up following engagement with the market and is intended to support firms as they adopt AI tools at speed.
It added that it is the first guidance of its kind from any audit regulator globally, and the second piece of material the watchdog has produced on AI use in auditing.
The audit regulator emphasises that the publication is not a reaction to specific failings identified in audit inspections.
Instead, it is presented as a way to formalise good practice, sustain audit quality, and build trust in the use of AI. It also seeks to create an overarching framework for the regulator’s future activity in this field.
At its core, the guidance offers a structured way for firms to consider how they can obtain sufficient confidence in the reliability and quality of AI-generated outputs.
It notes that the extent and type of safeguards and checks will depend on professional judgement and will differ according to the tool in question and the purpose for which it is deployed.
To help firms translate the principles into practice, the document includes case-style examples.
These cover scenarios such as using an AI system to summarise board minutes and deploying a tool to analyse contracts as part of revenue recognition testing.
The FRC also reiterates that its expectations on accountability are unchanged.
FRC Regulatory Standards executive director Mark Babington said: “AI adoption in audit is accelerating, and agentic AI is expected to follow.
“This guidance is designed to help firms invest in these tools with confidence, safe in the knowledge they are managing risk effectively and maintaining the high standards the public expects, while leveraging the benefits of new technology.
“It is important to be clear, however, that while technology changes, the fundamental principle of our regulatory framework does not: it is people – the firms and Responsible Individuals – who are accountable for audit quality.”
Recently, FRC issued updated guidance on “comply or explain” governance reporting.
