In Conversation: A revised approach to audit supervision
Published: 25 March 2026
10 minute read
In the latest in-conversation podcast series, Kate O’Neill sits down with Richard Moriarty, Chief Executive, and Anthony Barrett, Executive Director of Supervision to discuss the FRC’s evolved approach to Audit Supervision. The new model sets out a more proportionate, effective and integrated framework aimed at strengthening audit quality and reinforcing resilience across the UK audit market. Implementation will begin in April 2026 for the largest firms.
Transcript
00:00:11:06 - 00:00:31:15
Kate O'Neill
Hello and welcome to another FRC In Conversation podcast. My name is Kate O'Neill I'm the director of stakeholder engagement and Corporate Affairs. And today I'm joined by Richard Moriarty, our chief executive, and Anthony Barrett, executive director of supervision here at the FRC. Welcome, Richard and Anthony.
00:00:31:17 - 00:00:33:01
Richard Moriarty
Great to be with you, Kate.
00:00:33:02 - 00:00:33:19
Anthony Barrett
Thank you.
00:00:33:21 - 00:00:58:22
Kate O'Neill
So it's kind of a big day today - because after consulting with our stakeholders about the evolution of our supervision model, today, we're going to talk in this podcast about where we've got to in reviewing the existing model, providing some clarity on what we've got planned for the future, but also, how does that fit into our broader regulatory mission here at the FRC?
00:00:58:24 - 00:01:27:21
Kate O'Neill
So it is the launch of the next phase. To date. We've called it fast, but I think today where step changing to that audit supervision approach. But I think, Richard, starting with you and given you've spoken so much in the recent planning budget and other parts of the broader regulatory landscape of the FRC, how does the audit supervision approach project fit in with the efforts wider regulatory reforms?
00:01:27:23 - 00:01:51:10
Richard Moriarty
Okay, I'm really keen for the FRC to continue to support UK economic growth and the public interest, and one way we do that is to provide investors and other stakeholders with confidence in governance, financial reporting and audit. So it's really important that we continue the work that we have been doing on enhancing audit quality, and we've come a long way.
00:01:51:10 - 00:02:20:10
Richard Moriarty
Since 2018, audit quality has improved a lot. It's not universally consistent and there's still some issues for us to attend to, but I think now is a really good time to consider what is the best regulatory model to take us forward on audit quality and in particular, to evolve the model more in terms of looking at systems of quality management, in addition to the work that we do on file inspections.
00:02:20:16 - 00:02:45:13
Richard Moriarty
So the future vision is a blended approach of both looking at file inspections, perhaps less so, but also adding in the work on systems of quality management. I also think that such an approach, by looking at those systems of quality management, is best placed to drive system learning and get firms to really step up on their continuous improvement journey.
00:02:45:17 - 00:02:49:18
Richard Moriarty
And I'm really pleased we've got Anthony here to speak on the data.
00:02:49:20 - 00:03:06:08
Kate O'Neill
And then she'll definitely be drilling into that when I come to you in a minute. But I guess one of the things would be helpful to understand is why is now the right moment for this shift in our approach to audit supervision? I mean, start with you, Richard, and I'll pull you into this answer as well. Anthony.
00:03:06:10 - 00:03:30:09
Richard Moriarty
I think there are three reasons why now is a good time. The first is we have made substantive progress on audit quality, particularly for the largest firms. I think secondly, we do have an international standard on systems of quality management, which the UK helped negotiate and draft at the international level. And it's important that we now embed that.
00:03:30:11 - 00:03:53:17
Richard Moriarty
I think I would also add a third, which is it's really important for regulators like the FRC periodically to really challenge themselves on whether their regulatory models are best configured for the future and being proportionate, robust and effective. So for all those reasons, Kate, I think now's a good time to pursue this evolution.
00:03:53:19 - 00:04:04:10
Kate O'Neill
From deep within the supervision division at the FRC. I mean, I guess also markets have changed and the system needs to evolve to stay as active.
00:04:04:12 - 00:04:28:14
Anthony Barrett
Yeah, that's absolutely right, Kate. And it's really important to us to recognize that the market looks very different today than it did, say, back in 2018. You know, we've got technology changes, ownership model changes. The business environment has all changed. And our supervisory model needs to keep pace with those changes. But also have an eye to the future so that we can make sure that what we're designing today will still work in 2 or 3 years time.
00:04:28:16 - 00:04:52:02
Kate O'Neill
Yeah, that's very true. And I guess things like technology ownership models and the business environment more broadly have all changed dramatically since 2018. You mentioned his role in supporting UK growth. Richard, how do you think evolution over our or its supervision approach is going to do that? I mean, some people in the listening environment might say, what's the linkage?
00:04:52:02 - 00:04:54:00
Kate O'Neill
How can we make that happen?
00:04:54:02 - 00:05:20:16
Richard Moriarty
I think the basic argument here is that to support growth, you've got to have confidence, competence, to invest, confidence to scale a business, confidence to deploy capital. And in terms of access to capital, what people really want is trust and confidence in the numbers. And part of that is trust and confidence in the audit regime. And the Fscs regulation helps underpin that confidence.
00:05:20:22 - 00:05:44:08
Richard Moriarty
And we've come a long way since 2018. But I do think the changes that we are suggesting today will make sure that the regime is right sized and configured for the future, and also do so in a way which is proportionate, because it's really important that we're able to tailor and bespoke our regulation to the particular circumstances and business models of each firm.
00:05:44:10 - 00:05:55:10
Kate O'Neill
I think, Anthony, that approach we've been working on for a couple of years now with a different supervisory approach. So do you think that this supervision approach we're announcing today builds on that platform?
00:05:55:12 - 00:06:12:04
Anthony Barrett
Yeah, absolutely. Kate, and you quite rightly points out that we've been looking at a supervisory approach for a couple of years. We've made some changes kind of pre this project or just at the start of it to be more proportionate. But I think the key thing here and Richard's already mentioned it, is that the approach will be bespoke by firm.
00:06:12:09 - 00:06:22:20
Anthony Barrett
So to accurately reflect both the firm's impact in the market, but also our assessment of valuation of the audit quality risks that are that exist within each firm.
00:06:22:22 - 00:06:38:05
Kate O'Neill
So locally. And Richard, you reference the FSIs plan and budget for 2627. I mean, we're very much about proportionality conscious of burden. How does this fit into achieving those objectives?
00:06:38:07 - 00:07:09:19
Richard Moriarty
It's a good question, Kate, but the blunt answer is that we will have another year of flat headcount in the organization. So it's really important that we use our resources wisely and efficiently. And that means if we do more of some things, we do less of others. But actually in a world where we are looking to bespoke our regulation to the individual circumstances of the firms, I do think and I am assured, that we can deliver this new regime in a really robust and proportionate way.
00:07:09:21 - 00:07:32:12
Kate O'Neill
Thanks, Rich, and I guess those are key words for all regulators when thinking about changing their approach or how they're addressing their remit. So actually going into the specifics about what we're talking about today, what will people experience differently with this audit supervision approach? This I mean, I don't want to say new because it sounds like we just woke up this morning and came up with a new approach.
00:07:32:14 - 00:07:36:12
Kate O'Neill
But this new approach, I guess, to audit supervision at the FRC.
00:07:36:14 - 00:08:01:03
Anthony Barrett
Yeah. And I kind of think of it as a revised approach. And it's been said before, it's evolution, not revolution, building on the strong foundations we've had in terms of audit supervision. And I think, you know, the auditors and firms that we regulate can expect a bespoke and proportionate approach, which will be reflected in changes to some specific details about the work we do and how we interact with the firm.
00:08:01:05 - 00:08:17:03
Anthony Barrett
And I think a clearer, more proportionate, systems focused approach, looking at the system quality management is key to that. Then lifts audit quality aligns very clearly with the Fscs wider shift to smart targets and growth supporting regulation.
00:08:17:05 - 00:08:29:08
Kate O'Neill
I think certainly, but then I guess, how are you going to balance a new approach to streamline supervision without reducing transparency? Linking that to that comment of Richard's about creating confidence.
00:08:29:10 - 00:09:09:01
Anthony Barrett
Yeah, I think it's really important to maintain a level of transparency. So that all our stakeholders can see what we've been doing, how we've been doing it, and what the results and outcomes of that work are. But I think it's also particularly important to reduce burdens, particularly for those audit firms where audit quality is consistently high. Our approach needs to reflect the investment and the progress that those firms have made in improving audit quality, and I think our outputs will still provide focused and useful insights that better reflect the integrated supervisory model, while making sure that we do provide meaningful information to users.
00:09:09:03 - 00:09:22:18
Kate O'Neill
I guess that is, though, linked to a new model incorporating more than perhaps historically the Zcml one. The systems of quality management is really going to be a bigger part of the new model.
00:09:22:20 - 00:09:58:02
Anthony Barrett
Yeah, absolutely. And I think it's really important that as the whole market has shifted in overall terms to improved audit quality, that we find ways of continuing to promote the importance of audit quality, but in a way that's more proportionate. By looking at systems of quality management, we can definitely achieve a smarter and more proportionate supervision. So a strong, robust system of quality management within the audit firms with clear controls, strong monitoring and then timely remediation forms the foundation of our new approach.
00:09:58:04 - 00:10:07:18
Kate O'Neill
Do you say to people who say, well, not everybody's a larger firm, that lots of resources and is invested heavily in the systems of quality management, how do they catch up?
00:10:07:20 - 00:10:29:21
Anthony Barrett
Yeah. So there's two aspects to that really. The approach that we're kind of launching today very much looks at the 12 largest firms in the biotech market. And there are distinctions within those 12. But the approach is proportionate and scalable and takes account of a firm's impact in the market, as well as the audit quality risks for those firms in the market.
00:10:29:21 - 00:10:51:03
Anthony Barrett
They're outside of those 12. We're already working with them to build capacity and capability through our scale box. And so QM approach and as those firms complete that work with scale box, they will kind of migrate on to the new approach over the next 24 months or so in a way that's consistent with their own development and growth.
00:10:51:05 - 00:11:09:12
Kate O'Neill
So you really talking about a transition period here? You're not flicking a switch today saying this is our new approach. This is going to be over the next, what, 12 months. As you integrate this new approach into both inspections on files, but also in reviewing systems of quality management.
00:11:09:18 - 00:11:33:01
Anthony Barrett
That's absolutely right, Kate. And it's important for me to emphasize that, you know, whilst we're launching this new approach, it's not a big bang and suddenly everything's different. There will be some things that will feel different to those on the receiving end of our supervisory approach, but we're also going to try some new things over the next 12 months, some different types of inspections, not just full graded inspections, but we'll try some other things.
00:11:33:03 - 00:11:50:01
Anthony Barrett
And I'll also it's important to acknowledge that we probably won't get this right from day one. And we're very open to listening and reviewing what we're doing to make sure that actually, in 12, 24 months time, we have a really robust, well understood supervisory approach.
00:11:50:03 - 00:12:05:23
Kate O'Neill
I think that's an important point because some people will say, well, if you drop foul grades, you know, how is that going to be helpful? Is that lowering standards? But are you looking for more targeted insight rather than the kind of a one size fits all grading system?
00:12:06:00 - 00:12:34:21
Anthony Barrett
Yeah, and just to be clear, you know, we're not stopping graded final inspections. They will remain an important element of our approach, not just for independently assessing public interest entity audit quality outcomes, but also to feed into our evaluation of the system of quality management. Because engagement performance is one of the key aspects of that, we will be reducing the number of graded inspections, where this is supported by a good system of quality management and good quality outcomes.
00:12:34:23 - 00:13:00:04
Anthony Barrett
And then we will focus our activity on firms specific things designed to enhance audit quality across the market. And that will include some follow up inspections where we follow up on specific issues that a firm that we've identified, or thematic issues that might arise across a number of engagements at a firm or across a number of firms and provide information to all the stakeholders on those activities.
00:13:00:06 - 00:13:14:05
Kate O'Neill
Quite often, people forget that the is responsible for the whole audit market through its delegation to the professional bodies. Have you included the professional bodies in your discussions of how you're thinking about this new approach?
00:13:14:07 - 00:13:45:12
Anthony Barrett
Yes, it's absolutely key, and it's really important to us that the approach is designed for the whole audit market, and not just either the 12 that we're starting with or with just by audit firms. Smaller firms already have dedicated support through Scale Box, as I've already mentioned, and they will transition in due course. But we've been working with the professional bodies to make sure that, you know, in particular, the transition from non auditor to pilot is more seamless so that we can encourage more entrance into the Pi audit market.
00:13:45:18 - 00:13:51:17
Anthony Barrett
And then support subsequent growth by those firms which can then maintain high audit quality.
00:13:51:19 - 00:14:09:08
Kate O'Neill
And Richard, that really ties into your point about confidence. It's not just about building capacity capability in one part of the market, a new approach that Anthony's just been taking us through, a price across the whole market in different ways. But a resilient audit market supports that confidence, right?
00:14:09:10 - 00:14:32:19
Richard Moriarty
It certainly does. Okay. And that's why I was so keen to make sure that we engaged properly and deeply with the full range of stakeholders that would be affected by this. I mean, naturally, we spent a lot of time with the audit firms who are subject to our regulation, but it's really important. The users of financial information, the people that rely on the integrity of audit and the confidence of audit were at the table.
00:14:32:24 - 00:14:36:22
Richard Moriarty
And I was very keen that they supported this direction of travel.
00:14:36:24 - 00:14:55:00
Kate O'Neill
Well, I guess, Angela, you'd like this to be this is a starting point. It's not flicking a switch. It's going to be very interactive and it'll be evolving over the next year as the new approach really starts to be rolled out through the supervisory model and the new inspection model.
00:14:55:02 - 00:15:21:10
Anthony Barrett
Yeah, that's absolutely right, Kate. And we will continue to engage with the range of stakeholders to get their feedback on how it's working for them and to reflect how it's working for us, so that we can make sure that at the end, whenever the end is, because we're continuously looking to improve. But in the end, everyone recognizes that we have a proportionate, bespoke approach that supports audit quality improvements and maintenance of high audit quality across the market.
00:15:21:12 - 00:15:29:14
Kate O'Neill
And while this is an evolution in our approach, it is grounded in the fundamentals of what is involved in good auditing.
00:15:29:16 - 00:15:48:01
Anthony Barrett
That's right. And at one level, it takes an approach not dissimilar to audit. You see if you can place reliance on the system and then if you can or if you can't, you then design your subsequent procedures on that basis. And that's what we're doing here, looking to see how much confidence we have in a firm system of quality management.
00:15:48:01 - 00:15:53:06
Anthony Barrett
And then designing supervisory activities to fit with that assessment.
00:15:53:08 - 00:16:10:00
Kate O'Neill
All right. Well, thank you, Richard and Anthony. This is an important kind of line in the sand for this important project. And I guess you'll be continuing to update people, Anthony, as the first year of the new approach evolves and sharing with our stakeholders the things we're hearing, I'm doing differently.
00:16:10:02 - 00:16:17:00
Anthony Barrett
Yeah, that's right Kate, we will. And that's a really important element of what got us this far. And it needs to take us a bit further as well.
00:16:17:02 - 00:16:23:03
Kate O'Neill
Thanks both, and look forward to hearing of how this evolves and develops over the next year or so.
00:16:23:05 - 00:16:23:18
Richard Moriarty
It's very much.
00:16:23:18 - 00:16:24:20
Anthony Barrett
Kate. Thanks, Kate.