FRC introduces evolved approach to audit supervision
The UK’s Financial Reporting Council (FRC) has announced a major overhaul of its audit supervisory model, effective April 2026. The revised framework places firms’ Systems of Quality Management (SoQM) at the heart of supervision, moving away from a more uniform approach towards one that is risk-based, designed to suit the current audit landscape.
The new model introduces a tiered structure, with baseline supervisory activity applied across all firms and enhanced scrutiny directed where the FRC’s risk assessment identifies it is most needed. Graded file inspections will be complemented by follow-up, thematic and corroboratory reviews. Notably, the FRC will no longer aim to inspect all FTSE 350 audits on a five-year cycle, instead focusing inspection resources where confidence in a firm’s SoQM is lower or risks are higher.
The FRC has been intensively focused on audit quality since 2018, following a series of high-profile corporate failures that shook confidence in the UK audit profession. Having driven significant improvements over that period, the regulator now considers the market sufficiently strengthened to warrant a more graduated approach.
For those who care about the quality and reliability of corporate reporting, this is an important development. A supervisory model that targets effort where risk is greatest should, in principle, deliver both more effective oversight and better use of regulatory resources. The proof, as ever, will be in the outcomes.
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