The report sumarises the findings of the FRC over the period 2016/17 to 2021/22.  It inspected 51 audits at Tier 2 and Tier 3 firms and identified that 67% of the audits required more than limited improvements.  This compares to 27% for larger Tier 1 firms over a comparable period.  The FRC has called these findings 'clearly unacceptable'.

Acknowledging that some of the smaller audit firms need support, the FRC report sets out a number of support measures including:

• Increasing its supervisory resources dedicated to Tier 2 and Tier 3 firms.
• Sharing more about ‘what good looks like’ and the FRC’s expectations through: increasing its face-to-face engagement with firms; holding more events such as roundtables and briefings; and, developing new publications, in particular a guide to what makes a good audit firm operating at or planning to enter the smaller end of the PIE audit market.
• The creation an ‘Audit Firm Scalebox’ to provide bespoke input, outside of the formal inspection process, to Tier 2 and Tier 3 firms and firms considering entering the PIE audit market, so as to improve their ability to meet the standards the FRC expects of them as they enter the market and grow.
• Creating an ‘Audit Sandbox’ to explore audit policy and innovative ways to drive improvements in audit quality, including through technology.
• Conducting research to better understand the challenges faced by smaller firms in entering the PIE audit market and performing high-quality audits.

The FRC has also gained additional supervisory powers through the new PIE Auditor Registration regime which came into effect on 5 December 2022. This enhances the FRC’s ability to drive improvements in audit quality, ensure firms are growing sustainably and more closely monitor the auditor’s work as well as enabling the FRC to apply conditions or undertakings when concerns are identified.

A press release and the full report are available on the FRC website.