Results from 2025’s audit monitoring visits show an overall positive trend. More visits were closed without follow-up action, and fewer firms were referred to the Audit Registration Committee (ARC).
Reviewers from ICAEW’s Quality Assurance Department (QAD) completed 375 audit visits, which included review of over 600 audit files. “We concluded that the quality for 73% of those files was either good or generally acceptable,” says Helen. “This compares to a figure of 67% in 2024, which is the most positive result since 2021.”
Audits requiring significant improvement fell to 6% last year, from 10% in 2024, representing the lowest number since 2022. There was also a fall in the number of firms reported to ARC, which imposed conditions or restrictions on 32 firms in 2025 and withdrew two audit registrations.
“Results will never be directly comparable year on year because we visit different firms and review different audits each year,” Helen explains. “So, we will need to see a continuing trend. But nonetheless these results are very positive.”
Visit outcomes are reported at firm level and reflect not only audit file quality, but also firms’ policies, procedures and, crucially, how well they address findings through root cause analysis and remediation plans.
What are the key risk factors for audit quality?
In recent years, several audit quality risks have surfaced, which firms must continue to address through effective quality management. “For this year’s report, we’ve encapsulated the factors that reduce audit quality into three key risks – growth, technology and staff,” explains Nick.
The first risk is growth. Almost all audit firms have had opportunities to expand their audit portfolios over the past five years as the largest audit firms have disengaged from certain clients, or retirement and succession challenges have created opportunities for consolidators and growing small and mid-tier firms.
But dealing with new audit clients and expanding portfolios can be challenging, particularly where it involves clients that large firms may have considered too risky. If firms are not selective and fully aware of the complexity of companies seeking their audit services, they may fail to recognise and address key issues.
The second risk factor is technology. “AI remains an emerging risk but so far has not been a significant feature of audit work we’ve reviewed up to date,” says Nick. “Instead, the tech risks driving poor audit quality recently are relatively simple. As an example, some of the smallest audit firms have failed to manage the change from paper audit files to new audit software platforms, resulting in the loss or lack of original documentation.
“Disciplined change management is critical,” he continues, “whether you’re adopting new software for the first time, moving from one audit methodology to another, integrating data analytics into your proprietary audit methodology, or introducing AI elements to support your human team.”
The human audit team itself is the third risk factor. In many cases of poor audit quality, firms’ root cause analysis identifies the experience and capacity of the audit team as a contributor. Rapid growth without the requisite experienced staff is a clear risk, as are unrealistic expectations when recruiting experienced audit staff from large firms, who might not have the breadth of skills required.
How are firms adopting ISQM 1 best practices?
“An appropriately scaled, tailored system of quality management will enable firms to mitigate all three key risks,” says Nick. “And, because new challenges will always arise, that quality management system should also enable the firm to identify and address emerging issues quickly.”
“Since ICAEW began monitoring ISQM 1, we have seen firms adapting their procedures whether that’s larger firms implementing bespoke quality systems or smaller practices introducing manual documentation,” says Helen.
The most successful approaches share common features: a culture of quality, positive tone at the top, clear ownership of ISQM with appropriate time and resources, and a joined-up approach across the practice, including IT and HR. Systems should be tailored to the firm’s risk profile and continuously reviewed and improved.
“Examples of good practice include developing robust client acceptance and take-on processes,” says Helen. “When smaller firms are taking on larger and more complex audits, a collaborative approach to acceptance decisions can reduce the risk of taking on an inappropriate client.
“In mitigating risks from rapid adoption of software-based audit systems, we have seen firms using a commercial platform strengthened by internal templates and guidance, supported by data analytics and collaboration tools,” she adds. “Some firms have developed in-house IT teams to support audit work, including due diligence on new or updated applications, while others assess audit IT effectiveness as part of their annual ISQM review.”
From the perspective of staff risk, some firms have introduced structured induction programmes for experienced hires, including role-specific training and a dedicated contact to support transition.
What are the most common audit-quality weaknesses?
“We have identified some key areas of the financial statements where we most commonly see weaknesses in audit work, leading to poorer file gradings,” says Helen. “Recurring weaknesses often sit in inherently challenging areas such as complex transactions, judgement, estimation, and final review and documentation.”
The most common themes, and what firms should strengthen, include:
- revenue audit procedures (ISA 240): walkthroughs, obtaining independent evidence and ensuring all relevant assertions are addressed in the design of testing procedures;
- inventory (stock) audit procedures: third-party confirmations, cut-off and provisioning;
- long-term contract revenue audit: stage of completion, forecasts and loss provisions;
- financial reporting and disclosures: related parties, going concern and review; and
- group audit documentation: planning, component auditor oversight and consolidation.
How is ICAEW strengthening audit monitoring and supporting firms?
To enhance its audit monitoring, ICAEW has an audit risk team focused on identifying emerging risks. “The aim is to be proactive by contacting firms where data suggests heightened risk, checking understanding and encouraging early action to protect audit quality,” explains Nick.
A key recent risk has been the movement of audits between firms. To improve how quickly the audit team receives information when a firm accepts a new audit, Audit Regulation 3.15 was revised on 1 June 2025. Firms must now notify ICAEW of the movement of certain audits within 21 days of acceptance.
“We received over 100 notifications from firms up to 31 December 2025,” says Nick. “We’ve either had, or expect to have, further contact with firms about these new audits in around 50% of cases. If you’re an audit compliance principal, responsible individual or someone else with compliance responsibilities within your firm, please ensure you’re familiar with these new obligations.”
“Throughout our visits,” emphasises Helen, “we seek to engage with firms in a positive and constructive way, enabling open discussions on audit work, findings and challenges. We believe building these relationships will give firms the best chance of being successful, and this is key for ICAEW in being an effective regulator.”
Education is also critical in driving improvement. Alongside formal oversight, ICAEW provides resources to help firms understand regulatory expectations and address common weaknesses identified during visits. A key initiative in 2025 was the launch of Crossing the Line, an educational film drama bringing to life the pressures and judgement-calls auditors face. ICAEW-registered audit firms have free access to the film and its accompanying training materials.
Looking forward in 2026
“We believe there’s a positive story coming out of this latest audit monitoring report,” emphasises Nick. “Hopefully results from 2026 will confirm that some of the challenges we’ve seen within the firms we have visited over the past three years or so are retreating, allowing audit quality to recover over the long term.”
In January 2026, the UK government confirmed it was scrapping the Audit and Corporate Governance Reform Bill. “This means ICAEW’s scope of audit monitoring work will continue as it has been since 2016, spanning private companies from the largest to the very smallest”, he says.
“UK Statutory Auditors remain in a hugely privileged position to drive improvement in the financial management and reporting of companies and other entities. And ICAEW’s proportionate, improvement-focused audit monitoring, including assessment of adherence to standards and the highest expectations of objectivity and independence, continues to be critical to the public interest.”
Key takeaways: actions to strengthen audit quality
- Maintain execution discipline in complex areas (revenue, inventory, long-term contracts, group audits and disclosures).
- Manage growth through robust acceptance/continuance and realistic resourcing and skills planning.
- Treat technology change as a quality risk: protect documentation integrity, strengthen governance over tools, and evaluate effectiveness under ISQM 1.
- Invest in people and regularly review processes: supervision, onboarding and training (including financial reporting and specialist areas) to reduce recurring and last-mile failures.
Further information, resources and guidance
- Access our Audit Monitoring Report 2026 and webinar recording from 29 April 2026
- Review a copy of the presentation slides from the webinar on 29 April 2026
- Listen to the recording of our webinar on the FRC Ethical Standard (November 2025)
- Audit Regulations and Guidance
