FRC Calls for Consistent Audit Quality in New Findings & Good Practice Report

Key Takeaways

• Scope and Timing: Covers inspections of the twelve largest UK audit firms across the 2023/24 and 2024/25 cycles, focusing on audits with year-ends from 30 June 2022 to 31 May 2024.
• Grading Framework: Uses four ratings (Good, Limited improvements required, Improvements required, Significant improvements required) with key findings driving Grades 3–4.
• Purpose and Use: Anonymized findings and good practice are provided to help firms evaluate methodologies, address recurring issues, and strengthen systems of quality management.
• Core Themes: Emphasizes independence, professional skepticism, risk-based scoping, timely planning, clear documentation, and effective governance communications.

Deep Dive

The Financial Reporting Council (FRC) has published a new report setting out what’s working, and what isn’t, across the audits of the UK’s twelve largest firms. Drawing from inspections carried out over the 2023/24 and 2024/25 cycles, the regulator’s Key Findings and Good Practice Report shines a light on both the progress being made and the persistent gaps that continue to shape the state of audit quality in the UK.

The FRC said the report reflects its ongoing drive for transparency and improvement, offering firms a clear picture of common weaknesses as well as practical examples of what good looks like in practice. The audits examined covered financial years ending between June 2022 and May 2024, and findings were anonymised under statutory confidentiality rules.

FRC Executive Director of Supervision Anthony Barrett said the publication is about strengthening trust without stifling progress:

“Audits play a crucial role in the UK economy by fostering trust and transparency in financial reporting. These are essential to keeping capital flowing and maintaining the UK’s status as a leading global destination to build and scale a business.

It is vital that the FRC’s regulation of audit continues to underpin the importance of audit quality without creating disproportionate barriers.”

How the FRC Grades Audit Quality

Audits are assessed across four categories:

• Grade 1 – Good
• Grade 2 – Limited improvements required
• Grade 3 – Improvements required
• Grade 4 – Significant improvements required

A key finding typically reflects concerns about the sufficiency of audit evidence or the appropriateness of audit judgments—issues that can push an audit into the “Improvements required” or “Significant improvements required” brackets. Conversely, when strong practices are identified, they’re highlighted as examples for firms to emulate.

The FRC said this approach helps firms evaluate their own methodologies, spot recurring issues, and incorporate lessons learned into their systems of quality management.

What Makes a Good Audit

The report groups observations into key themes designed to help firms and Audit Committee Chairs translate the findings into action. These include:

• Independence and professional skepticism: Maintaining objectivity and a readiness to challenge management.
• Risk-based auditing: Focusing time and resources on areas of higher risk.
• Planning and execution: Aligning expectations, communicating clearly with governance bodies, and applying appropriate oversight.
• Documentation and follow-through: Ensuring audit work tells a complete, consistent story from planning to conclusion.

These principles echo the FRC’s earlier publication, What Makes a Good Audit, which underscored the importance of careful risk assessment, timely planning, and a proportionate response to higher-risk engagements.

The FRC’s broader Future of Audit Supervision Strategy is also evident in the report’s direction. The regulator is evolving its oversight model to place greater reliance on firms’ own systems of quality management, supported by targeted inspections rather than blanket reviews. In this framework, firm leadership bears a more explicit responsibility to embed a culture of quality, while Responsible Individuals remain accountable for the rigour of each engagement.

By sharing detailed examples of both pitfalls and strong practices, the FRC hopes to help firms strengthen audit quality and give Audit Committee Chairs greater visibility into how audit methodologies are evolving in practice.

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