Audit Firm Supervision (overview)
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Audit Firm Supervision (AFS) is responsible for the overall supervision of audit firms which audit Public Interest Entities (PIEs). PIEs are defined by the Companies Act 2006 (section 494A). The types of entities most likely to fall within the scope of the PIE definition in the Regulations include (but are not limited to):
- UK-incorporated (or otherwise registered or constituted) entities listed on the London Stock Exchange (or other UK-regulated market);
- UK-registered banks, building societies or other credit institutions (but not credit unions or friendly societies);
- or UK insurance entities within the scope of the Solvency II regulations as it stood at 30 December 2020 (even if they are no longer subject to Solvency II after that date).
AFS draws together the results of work undertaken by the other two teams (AMS and AQR) as well as other areas of the FRC. Our supervision of audit firms is rooted in strengthening audit quality and ensuring accountability in support of the public interest. Central to this approach is placing firms' Systems of Quality Management (SoQM) at the heart of supervision, with a focus on how firms implement and operate their SoQMs in accordance with the International Standard on Quality Management (ISQM) (UK) framework. Through engagement with a dedicated supervisor, the FRC seeks to drive continuous improvement which supports the delivery of consistently high-quality audits.
For further detail, please read An evolved audit supervision approach and our Audit Supervision Reports.
There are four main areas that AFS leads on in respect of audit quality and firm resilience:
- Audit Quality improvement led by a Supervisor
- PIE Auditor Registration
- Audit Firm Restructuring
- Audit Firm Scalebox and Building Capacity and Capability for Smaller Firms (Scalebox-SoQM)
Supervisor team
Supervisors each have responsibility for certain PIE audit firms. A key part of their work is assessing the effectiveness of the firms’ audit quality initiatives, including reviewing the firms’ formulation and progress on action plans, root cause analysis (RCA) and quality improvement plans (including Single Quality Plans or SQPs for the six largest PIE audit firms).
Single Quality Plans and Audit Quality Plans
We require the largest 12 firms to maintain a Single Quality Plan (SQP) or an Audit Quality Plan (AQP) to drive measurable improvements to audit quality and firm resilience and to facilitate oversight by the firm’s INEs / ANEs. Each firm’s quality plan must encompass certain established principles. These include the identification of key priorities, key actions, progress monitoring, and the assessment of effectiveness in priority areas. Where firms are not achieving their quality plan objectives, we will hold them to account and consider whether further actions are necessary.
RCA
Detailed RCA, implementation of robust actions on a timely basis to address findings and integration of those actions into a quality improvement plan are all important elements of improvement mechanisms. We assess each firm’s RCA and other lessons learned from quality matters. We then monitor and evaluate the firm’s action plan and effectiveness measures in place to address them.
Firm engagement and Pre-Appointment Meetings
Supervisors have regular interaction with firms which includes a series of meetings with senior firm management and pre-appointment meetings for certain senior roles for that firm. The Supervisors are therefore in a position where they have a holistic evidence-based understanding of the various audit quality initiatives being undertaken by PIE audit firms.
The FRC may hold pre-appointment meetings with candidates being considered for certain senior leadership, governance, risk and ethics roles within audit firms. These meetings are intended to support effective governance, leadership and risk management across the audit market. Decisions on whether to hold a meeting are made on a risk and impact basis, taking into account factors such as the firm's circumstances, governance arrangements and the suitability of the proposed candidate for the role. The process enables dialogue between the FRC and firms, helping to promote confidence in key positions that are important to audit quality and the public interest.
Risk Reporting Protocol
The FRC’s designation as the Competent Authority for statutory audit in the UK requires us to monitor risks arising from the systemic and performance issues which have the potential to lead to the demise of a firm, the disruption of audit services, further audit performance issues and/or an impact on a firm’s financial stability.
We have an agreed protocol with the largest 12 firms, which are required to notify their Supervisor without undue delay of incidents which occur either in the UK or across the firm’s global network which could reasonably be considered to pose a significant financial, operational or reputational threat to the UK firm.
Constructive Engagement and Published Constructive Engagement
In 2026, the FRC reformed our Audit Enforcement Procedure, modernising our regulatory toolkit. You can see more details about the reforms on: FRC modernises enforcement to deliver faster outcomes and earlier learnings for the UK audit market.
Constructive Engagement is the process whereby the Supervisor team agrees appropriate remedial actions with a firm to address specific audit quality concerns and reasonably mitigate the risk of similar issues recurring across the firm’s portfolio. Remedial actions, which must be responsive to the underlying root causes, may relate to the specific audit on which the issue has occurred or to firm-wide measures including policies, procedures and guidance. A case is closed when the Supervisor team is satisfied that the risks to audit quality have been reasonably mitigated. The process of embedding initiatives and assessing their impact on audit quality is monitored by the Supervisor team through conducting specific follow up activity and the ongoing assessment of the firms’ audit quality plans.
Non-financial sanctions (NFS)
The Supervisor team is responsible for monitoring the firm’s compliance with NFS and assessing whether audit quality has improved. This involves challenging the firm and drawing on knowledge from other areas of work (e.g. supervisory activities, AQR, AMS) to reach informed conclusions. The FRC therefore has oversight of how firms are rectifying specific audit failings, and the scrutiny and rigour exercised by the Supervisor team ensures that the NFS requirements are completed to the FRC’s satisfaction.
Reporting
Each year, AFS collaborates with other FRC colleagues on the publication of the Annual Review of Audit Quality (ARAQ). Supervisors also send private Supervisor Letters (SLs) that are tailored to each of the 12 largest firms. These supervisor-led letters clearly outline our view of the relevant risks to audit quality, the resilience of the audit market, and our prioritisation of the actions the firm must take to address them. The letter describes the supervisory work that we plan to carry out in the following 12 to 18 months. The letters relay some of the messages in the ARAQ, as well as conveying additional messages relating to our supervisory work. The firms respond privately to our letters, setting out the actions that they intend to take.
PIE Auditor Registration
A key recommendation of the Kingman Review was that the FRC should undertake the approval and registration of audit firms conducting PIE audits. The Kingman Review noted concern that the delegation of the approval and registration of statutory auditors left the FRC without sufficient power to act where systemic quality issues with an audit firm are identified. The Kingman Review also recommended that a new FRC regime for the approval and registration of audit firms conducting PIE audits should have a range of actions available to take in response. The FRC introduced PIE Auditor Registration for audit firms and individuals undertaking statutory audit work for PIEs with effect from 5 December 2022.
Audit Firm Restructuring
Firms restructure for a range of commercial, strategic and governance reasons. Such changes may have implications for a firm’s PIE Auditor Registration and to support firms through this process, the FRC has established a dedicated Restructuring team within its Audit Firm Supervision team within the Supervision Division. The team works closely with the PIE Auditor Registration team (the “Registration team”) and the firm’s Supervisor team when a PIE audit firm is proposing to restructure. The Registration and Restructuring teams will also liaise with the firm's Recognised Supervisory Body (“RSB”) and work closely with them throughout the process.
Scalebox and Building Capacity and Capability for Smaller Firms
The objectives of the Audit Firm Scalebox programme are to help audit firms enhance and maintain audit quality, promote resilience in the PIE audit market, support the FRC's role as an improvement regulator, and enable the FRC to better fulfil its regulatory objectives.
The Scalebox is a flexible mechanism for the FRC to engage with firms in areas where they require assistance. The Scalebox team focuses on common findings, changing requirements, and growth areas. Activities conducted by the Scalebox may include reviewing completed audits, assessing audit methodologies and examining internal quality monitoring systems
The Building Capacity and Capability initiative (including the Scalebox-SoQM initiative) was launched in January 2026 to work collaboratively with selected audit firms to strengthen their SoQMs. These initiatives support the development of greater capacity and resilience across the audit market.
Statutory Auditors Transparency Reporting
Auditors of certain public interest entities must publish annual Transparency Reports in accordance with the Statutory Audit Directive. The FRC carries out ongoing monitoring to ensure that all relevant firms publish a report that complies with the statutory requirements.
If you require further information, please email [email protected]. Enquiries from firms should be sent to their relevant Supervisor.
Notification of Resignation as a PIE Auditor
Auditors and Companies must notify their appropriate audit authority in respect of when an auditor ceases to hold office. These requirements are set out in Companies Act 2006 (Sections 522 to 525).
In respect of an audit of a Public Interest Entity (PIE), as defined by Companies Act 2006 (Section 494A), the appropriate audit authority is the FRC in its capacity as the Competent Authority.
Notifications of resignations to the FRC must be sent to [email protected], including any request for further extensions.
Auditors of non-PIEs, including AIM-listed entities and Lloyds syndicates, must send copies of their resignation letters to their Recognised Supervisory Body (namely ICAEW, ACCA, ICAS, ICAI).
Guidance on the circumstances in which the FRC is the appropriate audit authority, how the notification to the FRC should be made, and what it must cover is provided in the form of:
| Period | Number of resignations |
|---|---|
| 1 April 2021 to 31 March 2022 | 148 |
| 1 April 2022 to 31 March 2023 | 129 |
| 1 April 2023 to 31 March 2024 | 177 |
| 1 April 2024 to 31 March 2025 | 190 |
| 1 April 2025 to 31 March 2026 | 102 |
For detail regarding notification of appointment as a PIE auditor refer to PIE Auditor Registration Guidance.