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The Financial Reporting Council (FRC) has announced a new supervisory framework for the audit market following a period of consultation with industry stakeholders.
The revised model aims to transition the regulator toward a risk-based assessment of firms, focusing on systems of quality management rather than traditional inspection methods.
Implementation is due to begin this April for the largest audit firms. The FRC plans to pilot further developments of the framework throughout the 2026/27 period.
The change follows work by the regulator since 2018 to improve audit standards. The new approach integrates thematic reviews and targeted follow-up work to monitor firm performance.
According to the FRC, the model will support its efforts to build capacity for smaller firms. This includes a study into the small and medium-sized enterprise market.
Richard Moriarty, chief executive of the FRC, said: “The evolution of our approach to audit supervision reflects a wider programme in creating a regulatory environment that strengthens trust in UK markets while supporting business growth. Over the past decade, our supervisory approach has helped drive sustained improvements in audit quality, and today we have a stronger, more diverse audit market as a result.
“But we cannot stand still. This new approach represents the next evolution of our regulatory model – one that is more modern, proportionate and firmly grounded in risk.”
Anthony Barrett, executive director of supervision at the FRC, added: “Our purpose has always been to serve the public interest, underpin investor confidence and support the UK’s economic success. Effective supervision is fundamental to sustaining a trusted and resilient audit market and profession as sustainable audit quality supports confidence in the UK’s capital markets.
“A system designed in a 2018 world is less relevant to a 2026 world. The revised approach is about ensuring the system works effectively as a whole. It will scale our supervisory attention to the level of risk involved, while preserving the high-quality information that investors rely on.”
