UK's Largest Audit Firms Show Improved Results in FRC's Quality Review

The Financial Reporting Council (FRC) of the UK has released its latest quality review, revealing a continued improvement in the annual inspection and supervision results for the country's largest audit firms for the fourth consecutive year.

The report highlighted that the seven "Tier 1" firms, including BDO, Deloitte, EY, Grant Thornton, KPMG, Mazars, and PwC, demonstrated progress in the percentage of audits inspected that were deemed good or requiring only limited improvement. This figure increased from 67% in 2020 to 77% in the latest review.

Among the Big Four auditors, KPMG was the only firm to have one of its audits inspected requiring significant improvement out of a total of 19 audits reviewed. Deloitte, PwC, and EY performed better, with 82% of their respective audits found to require no more than limited improvements.

Grant Thornton achieved positive results, with all five audits reviewed requiring no more than limited improvements. However, BDO and Mazars had room for improvement, although both firms showed progress compared to the previous year.

The FRC emphasized the need for further action to address the remaining areas of concern. BDO was highlighted for recurring issues related to revenue, challenges of estimates and assumptions, testing of journals, and quality control. Mazars, while not requiring significant improvement in any of the audits inspected, had five out of nine audits found to need no more than limited improvements. The FRC identified specific areas of concern at Mazars, including estimation and judgment on provisions, investment valuation audits, and audits of cash flow statements and financial statements/key disclosures.

In response to the findings, KPMG acknowledged the areas for improvement and stated that immediate action had been taken to strengthen central oversight of engagements. BDO acknowledged that while there was some improvement in their inspection results, they fell below the firm's expectations. Mazars expressed disappointment with the number of audits requiring improvement and outlined their commitment to investing in audit quality initiatives to drive sustainable improvement.

The FRC will continue to enhance its level of supervision, requiring BDO and Mazars to take further action to raise the quality of their audits in specific areas. The council expects all firms to address the identified areas for improvement and enhance their overall audit quality based on the findings.

The FRC's quality review plays a vital role in promoting accountability and improving auditing standards within the UK's financial landscape. The outcomes of these reviews contribute to the continuous enhancement of audit practices, ensuring the maintenance of trust in the auditing profession.