Audit quality monitoring is how regulators and audit firms make sure that audit work meets the required standards. In the UK, the Financial Reporting Council (FRC) inspects the audits of public interest entities, while professional bodies like the ICAEW and ACCA review smaller firm audits through their own monitoring programmes.
For businesses appointing an auditor, understanding audit quality helps you ask the right questions and make a more informed choice about who audits your accounts.
How is audit quality monitored in the UK?
The UK has a layered system of audit quality reviews:
FRC Audit Quality Review (AQR)
The FRC’s AQR team inspects audits of the largest companies – FTSE 350 firms, major financial institutions, and other public interest entities. They select individual audit engagements, review the audit file in detail, and assess whether the audit opinion was supported by sufficient evidence. Results are published annually, and the scrutiny has increased significantly since the Carillion and BHS failures.
Professional body monitoring
ICAEW, ACCA and other recognised supervisory bodies monitor the audit quality of firms registered with them. Every audit firm receives a quality review at least once every six years (more frequently for higher-risk firms). The reviewer examines completed audit files, quality management procedures, and compliance with auditing standards. If significant issues are found, the firm may face conditions on its registration, additional monitoring, or in serious cases, withdrawal of its audit licence.
Firm-level quality management
Under ISQM (UK) 1, every audit firm must establish a system of quality management covering leadership, ethics, client acceptance, engagement performance, resources, and monitoring. This replaced the older ISQC 1 standard in December 2022. Firms must perform annual evaluations of their quality management systems and correct any deficiencies identified.
What makes a good quality audit?
The FRC’s Audit Quality Framework identifies five drivers of audit quality:
- The culture within the firm. Does the firm prioritise getting the audit right over meeting deadlines or keeping fees low?
- The skills and qualities of audit partners and staff. Experience, technical knowledge, professional scepticism, and the willingness to challenge management.
- The effectiveness of the audit process. Compliance with ISAs (UK), robust methodology, appropriate use of technology, and thorough review procedures.
- The reliability of audit reporting. Clear, useful audit reports and management letters that help directors and audit committees understand the issues.
- Factors outside the auditor’s control. The quality of governance at the audited entity, the reliability of the financial reporting framework, and the broader regulatory environment.
Why audit quality matters when choosing an auditor
A poor quality audit gives false comfort. If the auditor doesn’t challenge management’s accounting judgements, doesn’t test the right areas, or doesn’t have the technical expertise to spot problems, the clean audit opinion is meaningless.
When appointing or reappointing an auditor, ask about their monitoring results. A firm that’s willing to share its most recent quality review outcome – and explain how it addressed any findings – is demonstrating exactly the kind of transparency you want from your auditor.
At Audit Group, our audits are subject to ICAEW quality monitoring. We invest in ongoing training, peer review of all audit files, and a culture where getting the answer right matters more than getting the job done quickly. Request a proposal to find out how we approach audit quality.
