The UK audit market continues to diversify according to the Financial Reporting Council’s (FRC) latest Audit Market and Competition Update. 

Non-Big Four audit firms were responsible for 40% of all public interest entity (PIE) audits in 2024, up 1% from 2023, and almost doubling since 2020, when their market share was 22%. That includes 13% of FTSE 350 audit engagements, which is relatively stable compared to the rest of the market.

Quality gaps

The report highlights the improvements in audit quality in recent years, citing the investment in people and quality management systems. However, there continues to be a gap in quality between larger firms and the rest of the market.

ICAEW commented that “audit market competition and resilience are very important aims, and we very much welcome the greater competition in PIE audit that the FRC report describes, but audit quality should continue to be seen as paramount. We encourage the FRC to redouble its efforts to understand the different ways in which audit quality can be enhanced in firms of different sizes, to more effectively address issues in firms that have not made the grade".

"What works in the largest firms may not work for other firms and we therefore support the FRC’s Scalebox and other initiatives that address the capabilities and capacity of firms other than the largest that are now taking on PIE audits. Where the PIE entities being won are complex, or have less well-developed financial reporting processes, there may be greater challenges to audit quality and ICAEW supports a flexible, nuanced and proportionate supervisory approach built around firms’ Systems of Quality Management.”

The FRC highlighted support initiatives such as the Audit Firm Scalebox to help smaller audit firms grow while improving audit quality. That includes a Scalebox-Systems of Quality Management workstream. It announced the Building Capacity for Smaller Firms initiative that supports firms to develop a presence in the PIE audit market. 

FRC competition measures

Outside of the Scalebox initiatives, the FRC highlighted several of its areas of focus to improve competition further in the market:

• promoting a well-functioning audit market;
• improving audit quality;
• removing barriers to growth for smaller firms;
• improving access to audit services; and
• creating more proportionate and less burdensome regulation.

The measures outlined in the report include a collaboration with professional bodies to modernise audit qualifications through its Audit Qualification 2030 project, launched in September. It also highlights a campaign to improve access to audit for SMEs to help grow the entire audit market. 

It pointed to amendments to the Stewardship Code and Corporate Governance Code as examples of changes designed to create clear and proportionate reporting requirements. 

"A well-functioning audit market is essential for maintaining confidence in UK plc and enabling businesses to attract the capital they need to grow,” said FRC CEO Richard Moriarty. “While we've seen encouraging progress, with non-Big Four firms now conducting 40% of PIE audits, achieving a resilient audit market requires collective action from all stakeholders – audit firms, companies, and regulators alike. The FRC is committed to working collaboratively to embed proportionality, reduce unnecessary burdens, and build capacity across the whole market."