PwC, KPMG, Deloitte and EY have completed their three-year transition period in which they have made significant improvements to their governance and delivery of quality audit, according to an announcement by the FRC.

Measures put in place by the big four firms include the creation of independent audit boards chaired by audit non-executives, improved transparency on financial transactions between audit and non-audit sides of the business, and greater accountability at firm level for the delivery of operational separation. The firms have also further developed audit-specific cultures, with behaviours focussed on challenge, openness and professional scepticism.

All four firms have met the implementation deadline set by the FRC for the principles of operational separation. The FRC will publish an annual assessment of the firms’ compliance now the transition period has come to an end. This is set out in its operational separation principles.

Operational separation was introduced in 2020, involving  the four largest firms voluntarily splitting their UK audit and non-audit practices. Its primary objective is to ensure the delivery of high-quality audits in the public interest.

“The FRC is pleased with the spirit in which the firms have embraced operational separation and the progress achieved to date,” said Sarah Rapson, Executive Director of Supervision for the FRC. “Since 2020, there have been notable improvements in audit quality at the Big Four which has been underpinned by wider regulatory improvements.”

Alongside the continuous monitoring of firms’ compliance, the FRC will make further supervisory efforts to further improve trust in UK businesses to support investment and growth.

“Operational separation has been a significant undertaking for the firms involved,” said Katharine Bagshaw, ICAEW’s Senior Manager, Auditing Standards. “Wider acknowledgement is warranted for this important and positive contribution by the firms to enhanced audit quality and audit reform more widely.”

The FRC will publish minor revisions to the operational separation principles and related updates to the Audit Firm Governance Code in October 2024.