The regulator’s ‘Developments in Audit 2020’ report identifies that audit quality remained too inconsistent in the most recent round of inspections, with 49 out of 130 audits needing either a slight or drastic improvement.
Inconsistent quality was found in audits completed before the impact of Covid-19 on the sector.
Among the risks to the audit market identified in the report were the concentration of the FTSE 350 audit market, the limited choice available for companies to obtain a high-quality audit, and the market’s vulnerability to the failure of one of the Big Four firms.
David Rule, the FRC’s Executive Director of Supervision, said: “Auditors have a key role to play in ensuring users of annual reports have reliable financial information. Despite there being examples of good auditing, auditors are still not delivering to a consistently high standard.
“Covid-19 has emphasised the importance of high-quality financial reporting, alongside challenging and rigorous auditing.”
He added: “During the pandemic auditing has become more challenging and audit firms need to redouble their efforts to deliver the required consistency in audit quality.”