Annual review stresses need for greater investment in quality management systems
The Financial Reporting Council (FRC) has published its annual review of audit quality, highlighting a persistent gap in standards between the largest and smallest audit firms.
The regulator said its Annual Review of Audit Quality 2026 provides a market-wide assessment designed to support decision-making by audit firms and committees.
The report combines assessments of systems of quality management with audit file inspections to analyse factors shaping quality, including governance and operating models. According to the regulator, firm-wide systems of quality management are the foundation of audit quality and create conditions for sustainable improvements over time.
While progress in audit quality continues across the market, the level of consistency varies significantly. The FRC noted that the gap between large and small firms is particularly evident in the development of and investment in quality management systems.
In response, the regulator has moved to a risk-based supervisory approach to drive improvements. The FRC is also implementing targeted programmes to address market inconsistency, including initiatives to build audit firm capacity and an audit and technology sandbox to support innovation.
Anthony Barrett, executive director of supervision at the FRC, said: “Audit quality and trust in the audit sector are fundamental to well-functioning markets and confidence in the UK economy. Reliable audits support informed decision-making, strengthen accountability and underpin sustainable growth.
“It is encouraging that audit quality continues to improve, but it is not yet being delivered consistently across the market. Strengthening the systems within firms that underpin audit delivery is therefore critical. Well-designed and effectively operating systems of quality management create the conditions for high-quality audit to be delivered consistently over time.”
He added: “There is no one-size-fits-all approach to delivering audit quality. Firms differ in their structure, strategy and risk profile; what matters is that each firm’s systems can deliver quality outcomes reliably.
“Our supervisory, investigatory and enforcement activities deliver improvements in audit quality which support the UK as a great place to raise capital and to do business. We recognise that there is more work to be done in improving audit quality and are committed to a regulatory approach that underpins a thriving and resilient audit market.”
Heather Sandlin writes in Accountancy Today