FRC Urges a Culture Shift in Audit Quality After Latest Inspections

Key Takeaways

• Culture over compliance: The FRC’s latest inspection report urges firms to embed quality and skepticism into their culture, not just their procedures.
• Evolving supervision: Future FRC oversight will rely more on firms’ own systems of quality management, placing greater accountability on leadership.
• Persistent challenges: Insufficient evidence, weak documentation, and limited professional scepticism remain recurring audit quality issues.
• Good practice examples: The report highlights anonymized examples of innovative risk assessment, stronger group audit oversight, and better specialist integration.

Deep Dive

The Financial Reporting Council (FRC) has published a fresh look into the state of UK audit quality, a mix of warning signs and bright spots drawn from inspections across the twelve largest audit firms.

The Key Findings and Good Practice report, covering the 2023/24 and 2024/25 inspection cycles, offers a window into how the FRC’s supervisory lens is evolving and how firms are being asked not just to comply, but to continuously refine how they think about audit evidence, skepticism, and professional judgment.

Anthony Barrett, the FRC’s Executive Director of Supervision, framed the report as part of the regulator’s mission to maintain confidence in UK financial reporting without choking innovation.

“Audits play a crucial role in the UK economy by fostering trust and transparency in financial reporting,” Barrett said. “It’s vital that the FRC’s regulation of audit continues to underpin the importance of audit quality without creating disproportionate barriers.”

His remarks capture the regulator’s current balancing act, including protecting the credibility of the UK audit market while easing firms toward more self-driven systems of quality management, an approach that places as much weight on culture as on compliance.

From Grading to Growth

The report builds on the FRC’s Annual Review of Audit Quality and firm-level inspection findings, categorizing each audit into four grades ranging from Good to Significant Improvements Required.

But the message isn’t just about who scored what. Rather, it’s about helping firms see patterns in their own blind spots and replicate what works elsewhere. Key findings remain anonymized, but collectively, they reveal recurring trouble areas: inconsistent documentation, weak evidence chains, and insufficient challenge to management assumptions.

The FRC’s inspectors have also highlighted several standout practices, such as audit teams who strengthened early risk planning, integrated specialists more effectively, or clearly linked risk assessment to audit testing strategies. These examples, though anonymised, serve as signposts for firms looking to move from “box-ticking” to intelligent audit orchestration.

Professional Skepticism Still Under Strain

Despite years of reform and public scrutiny, professional skepticism, the auditor’s duty to question rather than confirm, remains a pressure point. The report points to instances where auditors failed to sufficiently interrogate management estimates or test contradictory evidence.

It’s a familiar refrain, but one that continues to define audit culture. As the FRC shifts toward its Future of Audit Supervision model, firms will be expected to embed skepticism structurally, within systems of quality management, team oversight, and leadership tone, not just as a procedural mindset.

The FRC’s inspection approach has evolved beyond static, after-the-fact assessments. Increasingly, the regulator is focusing on whether firms’ internal quality systems are capable of catching and correcting problems before they reach the inspection stage.

That shift mirrors broader trends in global audit oversight in quality as a process, not a verdict. The FRC has said future supervision will “place more reliance on firms’ systems of quality management,” signaling a move toward accountability at the leadership level rather than solely at the engagement partner level.

Audit Committee Chairs, often on the receiving end of FRC feedback, are also being urged to use the new report as a learning tool. Understanding not only where audits falter but why they falter is key to maintaining oversight that adds value, not friction.

The message beneath the formal language is that audit quality can’t be legislated into existence. It depends on leadership tone, skeptical mindset, and the everyday discipline of evidence and judgment.

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