The UK Financial Reporting Council (FRC) recently published its Annual Review of Audit Quality, covering inspection and supervision results for Tier 1 audit firms — including Deloitte, EY, KPMG, PwC, Forvis Mazars, and BDO. While some progress has been made among Big Four firms, the FRC found, the other Tier 1 firms continue to struggle with audit quality.
Over the past five years, audit quality has improved at the Big Four firms — Deloitte, EY, KPMG, and PwC — with 94%, 76%, 89%, and 76% of audits categorized as good or requiring limited improvements, respectively. Audit quality at FTSE 350 companies also increased, rising from 81% to 87% year on year. “The FRC welcomes the audit quality improvement at the largest four audit firms, particularly the improvement in FTSE 350 audits, which are some of the most complex and systematically important UK audits," said Sarah Rapson, the FRC's Executive Director of Supervision. "This progress demonstrates the considerable efforts to improve audit quality firms have made over a number of years.”
However, a significant gap emerged between the Big Four and the "challenger" firms, BDO and Forvis Mazars. BDO's audit quality declined sharply from 69% to 38%, while Forvis Mazars' results dropped from 56% to 44%. Although these results were based on a sample and not representative of all audits, they fell short of FRC expectations. "Both firms are strategically important to the UK audit market and the wider UK economy, so it is vital that they deliver on their agreed improvement plans," Rapson said. "The FRC's supervisory work with these two firms will continue to focus on these improvements."
In a contribution to Starling's 2022 Compendium, Sarah Rapson discussed the FRC's efforts to restore trust in the audit profession by addressing the cultural root causes of poor audit quality and professional conduct.
"At the heart of this change is a fundamental need to ensure that an audit firm has a purpose-led culture with the goal of assuring audit quality and maintaining trust in capital markets at its core," Rapson wrote. "A purpose-led culture, aligned to strategic objectives, is not just a requirement for corporations, but also vital for those firms that provide professional audit and assurance services to the large organisations that affect the wider health of the UK markets." ▸ Read More
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