The Financial Reporting Council (FRC) has released its Annual Review of Audit Quality, evaluating the performance of audit companies across the UK Public Interest Entity (PIE) market.
Based on a risk-based sample of audits, the review includes individual assessments for major Tier 1 audit firms such as BDO, Deloitte, EY, Forvis Mazars, KPMG, and PwC.
The findings from the latest inspections indicate an overall improvement in audit quality, particularly within Tier 1 entities, five of which achieved satisfactory audit quality outcomes in 90% or more of their audits.
Despite these gains, Forvis Mazars is advised to continue its efforts to ensure “lasting improvement” while BDO is called upon to address recurring audit quality issues “urgently”.
The FRC also raised concerns about the potential increase in the disparity between the audit quality of Tier 1 firms and other companies within the PIE market.
While certain non-Tier 1 firms have shown they can perform high-quality audits, many have not consistently met the necessary standards.
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By GlobalDataIn the area of Systems of Quality Management (SoQM), the FRC has found that the largest four firms have effective processes for assessing and addressing quality risks, annual evaluations, and governance.
Conversely, the review reveals that most Tier 2 and all Tier 3 companies need to make improvements in designing and implementing their SoQMs.
FRC supervision executive director Sarah Rapson said: “While audit quality in the UK has improved significantly since 2018, and compares favourably internationally, the market should not be complacent.
“We call on audit firms, company directors, investors, professional bodies, and educators to continue to work with us to build a thriving, high-quality audit profession that meets the needs of UK businesses and reinforces public confidence in our markets.”
Last month, the FRC issued its first guidance on the use of AI in auditing, aiming to assist auditors in incorporating AI tools into their workflows and clarifying the associated documentation requirements.
