2024 Published Reports: FRC. PSAA.

Executive Summary. Report for the UK Financial Reporting Council (FRC). Views of Audit Firms

analytical report concept image finger on blue key on keyboard

Financial Reporting Council (FRC) - Views of audit firms on entry, growth and exit in the markets for smaller PIE audits and non-PIE audits.

A research project to generate insights into the PIE and non-PIE audit markets to help inform the FRC’s future work and regulatory approaches. The overall objective of the research was to enhance understanding of firm entry, growth and exit in the PIE and non-PIE audit markets.

Access the full report for the FRC

The comprehensive report, containing detailed findings, has been published by the FRC.  Key extracts from the reports Executive Summary are as follows:

“This research was undertaken in support of the FRC’s strategic objective and sought to enhance understanding of entry, growth and exit of firms in the Public Interest Entity (PIE) and non-PIE audit markets by obtaining the views of smaller audit firms and non-audit firms.

The research comprised surveys and / or interviews with:

  • 11 Public Interest Entity (PIE) audit firms that audited fewer than 20 PIEs in 2021.
  • 19 larger, non-PIE audit firms that were either ex-PIE auditors (7 firms) or could potentially become PIE auditors under options for expansion of the PIE definition that the Government is considering (12 firms).
  • 97 non-PIE audit firms, including 5 firms that had left the non-PIE audit market.
  • 8 non-audit firms and investors with a potential interest in entering the audit market.

The research had two parts: one focused on the PIE audit market; the other focussed on the non-PIE market, including on the economics of firms in the non-PIE market. Some of its findings apply to both markets; some are specific to only one of them.

Overarching finding – capacity constraints in the PIE and non-PIE audit markets

The research found extensive evidence of smaller audit firms seeing an imbalance between, on one hand, growing demand for audit services and, on the other, severe constraints which limited their ability to meet that demand. This was true across all the groups of firms in scope of this research.

The firms indicated that the principal cause of this imbalance was the difficulty of attracting and retaining suitably qualified audit personnel at all levels.

There was widespread concern amongst the firms about the capacity shortage being driven by the unattractiveness of the profession. It was clear that the attractiveness issue stemmed from a broad range of factors and affected both the PIE and non-PIE audit markets.

Steps Forward

The research sought views from firms on ways in which both the PIE and non-PIE audit markets could be improved. A wide range of suggestions were received, with the most frequent being centred around the FRC and the recognised supervisory bodies (RSBs) both providing more education and best practice to help firms deliver high-quality audits.

Some participants proposed or noted specific actions that the FRC is already undertaking, including for example the audit Scalebox which provides a means for smaller audit firms to gain input and insights from the FRC to assist them to grow.

However, the overarching findings from this research on capacity constraints driven by recruitment and retention problems points to a wider issue for the audit sector as a whole.

Addressing a challenge of this magnitude may require a combination of different actions by different bodies – in effect, a whole system response, involving the FRC, RSBs, NAO, government, firms and audited entities.”

Access the Full Report for the Financial Reporting Council

Choose the button link below:

Complete Report for the Financial Reporting Council (FRC)


You may also like: