The UK accounting watchdog has threatened to take action against BDO and Forvis Mazars over the weakening quality of their audits.
The Financial Reporting Council (FRC) said inspections from its annual review of the UK’s largest auditors found the firms’ work did not meet its quality standards.
It came as the watchdog hailed an improved performance from the sector’s big four – Deloitte, EY, KPMG and PwC – after they came under scrutiny following a number of high-profile collapses over the past decade.
The FRC said on Tuesday that audit results for BDO “declined significantly from 69% to 38%” in its annual review.
Today the FRC published its Annual Review of Audit Quality which covers the inspection and supervision results of the Tier 1 audit firms. Of the audits inspected this year, 74% were categorised as good or requiring limited improvements: https://t.co/YEtbnHJAQf #audit pic.twitter.com/ET3X9G9vsO
— Financial Reporting Council (@FRCnews) July 30, 2024
It added that rival Forvis Mazars’ results declined from 56% to 44% year-on-year.
“Given their strategic importance to the audit market, both firms must urgently address the causes of these declines and undertake significant audit quality improvement plans which will be closely monitored by the FRC,” the regulator said.
It said it would work with the companies to monitor audit quality but could take “stronger action” if it fails to see improvements by next summer.
Sarah Rapson, executive director of supervision at the FRC, said: “Disappointingly, BDO and Forvis Mazars’ performance has fallen significantly below our expectations.
“Both firms are strategically important to the UK audit market and the wider UK economy, so it is vital that they deliver on their agreed improvement plans.
“The FRC welcomes the audit quality improvement at the largest four audit firms, particularly the improvement in FTSE 350 audits, which are some of the most complex and systematically important UK audits.
“This progress demonstrates the considerable efforts to improve audit quality firms have made over a number of years.”
Paul Eagland, managing partner at BDO, said: “We are deeply disappointed with our grades this year, particularly when we had recorded an improvement last year.
“While we remain confident in the expertise and commitment of our people, it is evident that further work is necessary for us to be able to secure grades in line with the FRC’s requirements as well as our own internal standards.
“Comprehensive actions and plans, shared with our regulators, have been and are being implemented to address each of the areas identified.”
Forvis Mazars has been contacted for comment.
