Overall, 75% of audits inspected were good or required limited improvement (compared to 71% in 2021 and 67% in 2020).

The number of audits considered good or requiring limited improvement has improved on the previous two years. It is clear that a combination of the FRC’s increasingly assertive supervision approach, as well as investment from the firms in their systems, people and capabilities to improve audit quality, is starting to have a positive impact.

Encouragingly, five of the largest firms had no audits requiring significant improvements. KPMG’s individual audit inspections have significantly improved, which is promising, but is not yet a trend. The FRC will continue to closely monitor KPMG banking audits.

The inspection results at Mazars and BDO remain unacceptable. Four of the eight audits reviewed at Mazars, and five of the 12 audits reviewed at BDO required more than limited improvements. Specific supervisory plans have been developed to closely monitor BDO and Mazars’ priority actions. The FRC will continue to ensure the challenger firms are prioritising high quality audit with a view to offering increased choice and resilience in the market, but growth ambitions must also be tempered by a focus on quality first and foremost.

Sir Jon Thompson, FRC’s chief executive, said: “While it is encouraging to see some improvement in audit quality at the largest audit firms, consistent, long-term improvement is still required across the market.

“We will monitor closely the potentially negative impact on the public interest that the de-risking by firms of challenging audits may have on audit quality.

“The FRC will continue to build on our assertive supervisory approach to ensure firms are consistently delivering high quality audit which will drive increased choice and resilience in the market over time”.