Audit watchdog launches ‘bold new programme’ to support growth at smaller firms
The audit regulator has unveiled a new initiative aimed at enhancing the presence of the UK’s small audit firms in the Public Interest Entity market.
The Financial Reporting Council (FRC) has initiated a new and more proportionate supervisory approach, designed to enhance audit quality and reflect the unique needs of smaller firms.
The body will invite small firms to participate in a new Scalebox Programme where they will work closely with the FRC to develop their audit quality, while supporting the regulator in assessing what is proportionate in the oversight of less complex PIE entities.
Whilst in the programme, the participating firms, subject to commitment and progress, can expect a reduction in certain formal inspection, supervision, and registration requirements during 2025/26 and 2026/27.
The focus is to recognise that smaller firms face “unique resource and capacity constraints” in building their presence amongst businesses that have a significant public focus.
FRC CEO Richard Moriarty explained, “I am keen for the FRC to support the growth of those firms that want to establish a greater presence in the PIE audit market who commit to delivering high quality and safeguarding the broader public interest that audit supports.”
“Whilst in this programme, we will offer participating firms a more forbearing formal regulatory oversight and focus our resources instead on supporting their improvement.”
“Accountability for improvement will, however, rest firmly with the audit firms themselves, and a condition of remaining in the programme is that we see progress over time,” he added.
Serious barriers to growth
This follows a damming report last week that revealed that small to mid-tier accountancy firms are facing “serious” barriers to growth due to staffing shortages.
According to figures from outsourcing specialists Advancetrack, 94 per cent of firms say recruitment issues are now holding back growth, forcing them to outsource work overseas.
While the FRC focuses on small audit firms, politicians are putting pressure on the Prime Minister to prioritise the long-overdue Audit Reform and Corporate Governance Bill.
The Bill, which was unshelved last July, would reform the FRC into a new regulator. However, a new cross-party alliance has called on Keir Starmer to prioritise the Bill, which has not made any progress.