The Financial Reporting Council (FRC) says audit quality across the UK’s largest firms has continued to improve.

The regulator’s Annual Review of Audit Quality, published yesterday, also calls for all stakeholders of the UK audit landscape to work together to deliver a thriving market and profession working in the public interest.

The report covers the inspection and supervision results of audit firms across the UK public interest entity (PIE) market based on a risk-based sample of the audits undertaken. The regulator has also published individual reports for Tier 1 audit firms BDO, Deloitte, EY, Forvis Mazars, KPMG, and PwC.

The latest inspection results indicate continued improvement in audit quality, especially among Tier 1 firms. Five out of six achieved positive audit quality outcomes on 90% or more of their audits.

However, the report warns that despite significant investments by the largest firms to enhance audit quality, there is a risk that the gap between audit quality delivered by Tier 1 firms and other firms in PIE market increases.

Although some non-Tier 1 firms demonstrate the ability to deliver high-quality audits, many still struggle to consistently meet adequate standards and maintain robust quality management systems, the regulator says. The FRC also flags up developments in technology, ownership structures, and the business environment as presenting both challenges and opportunities for the future of the UK audit landscape.

While the responsibility for a resilient audit profession and market is not the FRC’s alone, it is vital the supervisory approach of the FRC continues to underpin the importance of audit quality without creating disproportionate barriers, the regulator says.

The FRC’s Future of Audit Supervision Strategy project is well underway and will review and build on our supervisory approach over the next year. The FRC will continue to work with the whole of the UK audit ecosystem to ensure its supervisory approach supports a thriving market and profession working in the public interest.

The FRC’s Executive Director of Supervision, Sarah Rapson, said: “Audits are an important part of the UK economic and business ecosystem. They support well-run companies to attract the capital that is essential to fund innovation and scale businesses to thrive to the benefit the UK economy.

“While audit quality in the UK has improved significantly since 2018, and compares favourably internationally, the market should not be complacent. Continued progress, particularly in the Public Interest Entity market, requires sustained investment and cultural change, underpinned by robust systems of quality management.

Rapson said the audit market is evolving rapidly, shaped by technology, new business models, and shifting expectations, and said the regulator’s supervisory approach must evolve with it.

“But the responsibility for securing the future of the UK audit market is not ours alone,” Rapson added. “We call on audit firms, company directors, investors, professional bodies, and educators to continue to work with us to build a thriving, high-quality audit profession that meets the needs of UK businesses and reinforces public confidence in our markets.”

Alan Vallance, ICAEW Chief Executive, said: “Though it’s positive that quality of the biggest audits has continued to improve, we know that there remain challenges for firms to enter the PIE audit market.

“Our own research has shown that PIE audit remains an area of low appeal for smaller firms, with high regulatory and compliance demands, strategic misalignment and the substantial investment required for upskilling all deterring firms from venturing into this area. We agree that a regulatory approach shouldn’t create disproportionate barriers to firms, so we’d like to see the FRC take steps to make this market more attractive above and beyond the existing Scalebox initiative.

“Among the Big Four, we found 90% of audits were good or generally acceptable. We see a lot of good audit work across our wide range of registered firms but know that some continue to struggle with certain factors including staff retention, so we’ll continue to support our firms to help them build and maintain high standards.”

ICAEW’s 2025 audit monitoring report is based on analysis by ICAEW’s Quality Assurance Department, which visited 401 audit firms and reviewed work on 790 audits. It uses these insights to highlight common areas of difficulty and support in how to address them.

Published on 27 May, it offers insights into the potential root causes of audit quality issues and outlines six common weakness across areas including risk assessment, fraud and error, and substantive analytical procedures. It also points members in the direction of existing support.