The Financial Reporting Council’s (FRC) latest audit inspection results have found nearly 33% of audits conducted by the UK’s largest accounting firms failed to meet the watchdog’s quality standards.
Overall, 59 (67%) of the 88 audits reviewed in its 2019/20 inspection cycle, across the seven largest UK firms inspected annually, required no more than limited improvements. These firms include Deloitte, PwC, KPMG, BDO, EY, Mazars and Grant Thornton.
However, the FRC said the number of audits requiring more than limited improvements, 29 (33%), “remains unacceptable”.
Each year the FRC reports publicly on the findings of its inspection activity at the seven largest firms.
Together with an assessment of each firm’s quality control systems, the Audit Quality Review (AQR) team reviewed 88 audits across these firms and concluded that only two thirds of the audits were of a good standard or required limited improvement.
In the reports, the FRC has set out a number of significant steps that it is taking or intends to take in the short to medium term to ensure that the audit firms take “swift actions to respond robustly to [its] concerns”.
FRC executive director of supervision, David Rule, said: “We are concerned that firms are still not consistently achieving the necessary level of audit quality. While firms have made some improvements and we have observed instances of good practice, it is clear that further progress is required.
“The tone from the top at the firms needs to support a culture of challenge and to back auditors making tough decisions.”