The 2020/21 results show that nearly one third of audits inspected by the Financial Reporting Council (FRC) still require improvement.
- 29% of audits reviewed required improvement or significant improvement
- Quality across firms was mixed; improvement measures implemented
- Specific concerns regarding KPMG’s banking audits
- Improvement measures expected of BDO and Mazars
Sir Jon Thompson, FRC CEO said: “While these results show some improvement on last year’s results, this improvement is marginal and significant change still needs to happen to meaningfully improve audit quality.
“High quality audit is essential to maintaining trust and confidence in the UK’s financial markets. If the UK is to retain its position as a world leading professional services marketplace, and a global financial centre, outstanding audit quality and rigorous professionalism is at the heart of this.
“Some may question what the FRC has been doing and why audit quality improvement remains slow. Over the last 12 months the FRC has initiated its own programme of measures in response to many of the recommendations in the Kingman review such as: initiating operational separation of the Big Four firms; introducing enhanced audit standards in relation to ethics and fraud; building on our supervisory oversight; and strengthening our enforcement capability. However, elements of these actions remain voluntary on the part of audit firms and this is why the BEIS White Paper ‘Restoring trust in audit and corporate governance’ is so important. Legislation will ensure that a new regulator, ARGA, with increased remit and powers can be created to promote improved audit quality as the key output of audit firm work, in the public interest.”
- 103 audits reviewed
- 29% required improvement or significant improvement (2019/20: 33%)
- 71% assessed to be of a good standard or requiring only limited improvement (2019/20: 67%)
Quality across the individual firms was more mixed than in 2019/20 and the FRC has published measures that individual firms will be required to implement in response to individual inspection findings.
Inspection results at KPMG did not improve and it is unacceptable that, for the third year running, the FRC found improvements were required to KPMG’s audits of banks and similar entities. Given the systemic importance of banks to the UK economy, the FRC will be closely monitoring KPMG’s actions to ensure findings are addressed in a timely manner. KPMG has agreed additional improvement activities to be delivered this year over and above its existing audit quality improvement plan.
The FRC also expects BDO and Mazars to put in place additional measures to support high quality audit as they continue to grow. The reports outline the measures expected of BDO and Mazars.
The FRC had recurring findings in relation to the audit of revenue, impairment of assets and group audit oversight. The FRC had mixed findings in relation to the effective challenge of management of audited entities, with some examples of good practice but not on a consistent basis.
A link to all seven reports can be viewed here: