The Financial Reporting Council’s (FRC’s) annual inspection and supervision results of the largest audit firms (BDO, Deloitte, EY, Grant Thornton, KPMG, Mazars and PwC) found that 77% of audits were good or required limited improvement. This is a year-on-year improvement across the past four years – a 10% increase compared with 2020.

Five of the largest firms had no audits requiring significant improvements. The overall number of audits requiring improvement fell from 7% in 2021/22 to 3% this year.

Both Mazars and BDO showed signs of improvement following initiatives and actions put in place to raise audit quality. For BDO, 69% of audits were considered good or requiring only limited improvement, a notable increase from 58% in the previous year. Mazars saw a similar improvement: 56% of their audits met the desired standards, up by 6%. However, the FRC expressed disappointment with the overall results and a lack of progress in some areas.

The report also highlights the role of management and audit committees in the audit ecosystem. It sets out examples of steps that audit committees can take to drive responsive and high-quality audits.

Michael Izza, ICAEW’s Chief Executive, says that the report is a vital indicator of quality in the audit market. “By that measure, over several years now the largest firms have demonstrated real commitment to improvement. The sector has come a long way since Carillion.” 

Izza says that it would be good to see the government respond to this progress by finding the parliamentary time to pass its long-overdue audit reform legislation. “High standards of corporate governance and reporting are key to reclaiming the UK’s status as one of the best places in the world to invest and do business.

“I would encourage the FRC to accelerate its ambition to become an improvement regulator that acts in a fair and proportionate way. The principal challenge now is capacity, and regulation must play its part in making audit a profession that attracts and retains the best talent, and in supporting the next tier of firms to enter the market to increase choice and resilience.”

“It is encouraging to see the ongoing and consistent improvement in audit quality at the largest audit firms,” the FRC’s Deputy Chief Executive, Sarah Rapson says. “It is also encouraging to see progress at both Mazars and BDO. 

“Improving audit quality is at the heart of our purpose to promote integrity and choice in the audit market, which plays a vital role in ensuring confidence in the UK economy. By embracing our role as an improvement regulator that acts in a fair and proportionate way, we are committed to creating a more resilient audit market with the capability and capacity to continue to work effectively in the public interest.”