In Conversation: Building capacity for smaller firms
Published: 11 September 2025
8 minute read
In this podcast episode, Kate O'Neill, Director of Stakeholder Engagement and Corporate Affairs, speaks with Andrew Meek, Director of Audit Firm Supervision, about the FRC's new initiative to build capacity and resilience in the smaller audit firm market.
They discuss how this collaborative approach will help smaller firms strengthen their quality management systems and explore the benefits for the wider UK audit market, including improved audit quality and greater choice for companies seeking audit services.
Transcript
00:00:10:22 - 00:00:32:22
Kate O'Neill
Hello and welcome to another FRC in conversation. My name is Kate O'Neill. I'm the director of stakeholder engagement and corporate affairs for FRC. And today I'm joined by Andrew Meek, our director of Audit Firm Supervision, to discuss a new initiative at the FRC, which is being launched today called Building Capacity for Smaller Firms. Welcome, Andrew.
00:00:32:24 - 00:00:36:13
Andrew Meek
Thank you Kate. It's great to be here to talk about this new project.
00:00:36:14 - 00:00:49:04
Kate O'Neill
I know the answer is in the title, but I'd really love to get your views on what's driving this project and why is building capacity and resilience so important for the market, but also for the FRC?
00:00:49:06 - 00:01:09:13
Andrew Meek
Yeah, it's really important as an area of focus for us as an organisation. So building capacity and market resilience isn't new. But why is it so important? I think a strong and resilient audit market is essential to support well-functioning capital markets in the UK. Companies must be able to access a wide range of audit providers that can deliver consistent, high quality audits.
00:01:09:19 - 00:01:27:19
Kate O'Neill
What do you mean by smaller audit firms? Because maybe some of our listeners aren't aware the FRC is responsible for the whole audit market. At the smaller end, in some cases, the professional bodies have direct oversight of those. But for the purposes of this project, what do we mean by smaller firms?
00:01:27:20 - 00:01:49:23
Andrew Meek
Yeah, it's important to clarify, Kate. We have a number of firms that are directly registered by us at the FRC. There're about 30 or so firms that audit public interest entities, but there's a whole range of other firms outside of that that audit non-PIE audits, and those are what we would consider as smaller audit firms. An easy way to link it, perhaps, is through our audit firm governance code. We have a threshold of firms that audit more than 20 public interest entities, and I would say that anything that falls below that could be used as a definition of a smaller audit firm.
00:02:03:18 - 00:02:13:07
Kate O'Neill
And I guess this is not a new thing to support smaller audit firms — we've been supporting smaller firms before. What have we been doing to date to support this important part of the market?
00:02:13:09 - 00:02:43:11
Andrew Meek
So when we first set up audit firm supervision back in 2020, we introduced the concept of a dedicated supervisor for each audit firm that audits public interest entities. And since 2020, we've developed further initiatives working with smaller audit firms, including separate audit firm PIE registration in 2022. About 18 months ago, we introduced the Audit Firm Scale Box, also dedicated to working with firms outside of the inspection regime.
00:02:43:13 - 00:02:51:15
Kate O'Neill
So I think just to bring people up to speed, what does the Scale Box do? What has it been doing in relation to these smaller firms?
00:02:51:19 - 00:03:20:02
Andrew Meek
We've found the Audit Firm Scale Box to be a really useful and informative initiative that we've run for a couple of years now. We have 14 firms within our Audit Firm Scale Box currently, and we work collaboratively and openly with each of those firms to discuss areas pertinent and relevant to regulation, and in particular, to seek to support those firms ahead of inspection activity or just generally to improve audit quality.
00:03:20:04 - 00:03:41:12
Kate O'Neill
What do you say to people who would say, "Well, you know, the Scale Box is a great initiative, but as a regulator, are we giving them the opportunity for us to tell them what will be acceptable before an inspection? Or are we really looking through the Scale Box to provide ideas and a roadmap on how these firms can improve themselves and their audit quality?"
00:03:41:14 - 00:04:02:10
Andrew Meek
I think the important part of the Scale Box is it works in tandem with our other activities. So it doesn't remove the need for inspection and other supervision work. What it provides is an opportunity for us to work with the firm almost as a system partner, to have conversations about what good looks like and how firms might improve.
00:04:02:14 - 00:04:19:24
Kate O'Neill
You use the word "improve". This fits with our three-year strategy, which was published earlier this year. Being an improvement regulator is important to us, and I guess from a supervisory perspective, that improvement is a constant thing for us and the supervisory approach we apply.
00:04:20:01 - 00:04:28:19
Andrew Meek
Yes, that's right, Kate, and we're always looking for areas to work as an improvement regulator and to seek improvements in the firms that we supervise.
00:04:28:21 - 00:04:48:03
Kate O'Neill
As part of this initiative, I guess we want to approach those firms who either are auditing existing PIEs or have a desire to have everything in their toolkit to provide good audit quality and navigate the registration process for becoming a PIE auditor. Is that correct?
00:04:48:05 - 00:05:16:06
Andrew Meek
Yeah. So this initiative will allow us to work with current PIE-registered firms as we seek to develop and support those firms as they improve their system of quality management. But I think it's only a first stage in what we hope to be able to achieve as we look to expand on that and work with the professional bodies and other firms currently outside of the PIE market, and how we can equally support them in their growth journey.
00:05:16:08 - 00:05:32:05
Kate O'Neill
So how have you gone about this? You're starting with firms who are already working within the Scale Box. Are you adding to that list? And how can the voices of these firms be heard by the FRC regarding what they need to become better resourced to build capacity?
00:05:32:07 - 00:06:04:15
Andrew Meek
I think it's probably worth me just summarising a little bit about our early plans for this initiative. Firstly, what we're looking to introduce here is a new and more proportionate supervisory approach for these specific smaller firms. How would we do that? We're looking to take what we've learned from the Scale Box, and focus on working with those firms both collaboratively and supporting them as they enhance their own system of quality management. There's been a new standard, ISQM 1 requirements, in relation to quality management, and we're hoping that we can work with those firms as they develop their own systems to be able to do that. The third thing is that we are going to look to reduce our focus on some of the other inspection and supervisory activities that we ordinarily undertake at those firms.
00:06:26:07 - 00:06:38:15
Kate O'Neill
From what you're saying, this is going to be a holistic approach. It's going to bring all of those elements together to help these firms develop the capacity and capabilities they need to be participants in this market.
00:06:38:17 - 00:06:52:00
Andrew Meek
Yes, that's definitely the intention. I think it's switching our focus to being first and foremost, working with these firms on their system of quality management and then looking at the implications of that for our other work.
00:06:52:02 - 00:07:09:22
Kate O'Neill
I guess, Andrew, it's not an overnight fix — we think firms won't have the capacity and capability instantly, so you're going to work with them in what sounds like a partnership way to help them over a period of time to become more confident and more equipped to take on these audits.
00:07:09:24 - 00:07:34:10
Andrew Meek
Yes, it's definitely true that some of these improvements will take time, and it's important to reflect on that. The ultimate measure might be some of the inspection and quality results that we might wish to see improving at a particular firm. That's not just FRC inspections; that's also the inspections undertaken by professional bodies, and the firms themselves have their own internal quality monitoring functions.
00:07:34:10 - 00:07:58:01
Andrew Meek
So yes, over time we would hope to see those improve. But that's in a year or two. In the meantime, what we're really looking to see is firms investing in and engaging with the initiatives that we're offering. And also I think we'll be able to quite quickly see how the firms are responding to the various actions or initiatives that we're suggesting through our discussions.
00:07:58:03 - 00:08:19:19
Kate O'Neill
And this is a programme that's complementing a number of other initiatives that are underway. There's the Future of Audit Supervision Strategy, which I know you're involved in with your team, and also the SME project, which is examining how SMEs – such an important part of the UK economy – access audit to help them grow but also attract investment. So I guess capacity constraints and resources are things that we've heard across all of these projects. How do we help them get the skills needed to grow that capacity and capability?
00:08:31:20 - 00:09:07:00
Andrew Meek
Yeah, there's definitely significant overlap between our various projects and initiatives. As you say, the Future of Audit Supervision Strategy project has a clear focus on firms' systems of quality management, so we're clearly seeking to move in the same direction as we're seeing with this project. The other thing I would also say is that lots of the conversations through FASS and through the SMEs project looks at proportionality and how we supervise, from the largest systemically important audit firms in this country, right down to some of the smaller firms. And I think this project really fits well into ensuring we've got a clear, proportionate approach to how we supervise.
00:09:14:01 - 00:09:30:20
Kate O'Neill
I think it would be helpful to remind our listeners that some of those very large firms — the Big Four – they operate on a global basis, so you can't really compare them with other parts of the audit market because there are different drivers, not just for the business models, but also the resources at their disposal.
00:09:31:00 - 00:09:55:22
Andrew Meek
That's absolutely right, Kate. We actually have the 12 largest firms here in the UK, that all comply with the Audit Firm Governance Code principles. We've been spending quite a bit of time with all 12 of those firms over the last year or two, and there's a real difference between the resource capabilities and the way of implementing a system of quality management for those 12 largest firms, and what we see with the other smaller firms that we're therefore looking to spend more time with.
00:10:02:01 - 00:10:27:21
Kate O'Neill
In wrapping up, what are some of the benefits? This is a project that's obviously going to run for some time and as you say, has some overlap with some of the other important projects underway. Are the expected benefits expected to be longer-term growth in audit quality for the current smaller firms, improving perhaps not at the same rate across every firm, but to see that overall strong improvement across the audit quality measures?
00:10:27:23 - 00:10:50:20
Andrew Meek
I think I would suggest three real tangible benefits that we can expect to see through the course of this initiative. First of all, just overall quality improving across the market. Secondly, I think this focus on firms' systems of quality management, which goes right down to the culture of the firm and how that impacts on audit quality, is another real opportunity. And then thirdly, when we come to talk about capacity alongside capability, we've got an opportunity here to work with many firms across the UK audit market, which hopefully will bring more firms into the market to audit public interest entities.
00:11:05:22 - 00:11:26:13
Kate O'Neill
I think this is going to be obviously a very important project for the FRC, but also for the audit market to really drive more capability and capacity across the market, not just for PIEs, but to help firms engage with what audit quality measures they should be examining internally when building up resources and capabilities. So I think, Andrew, I'm going to invite you back because it'd be great to update our listeners and stakeholders as to the progress of this important project as it unfolds.
00:11:35:23 - 00:11:46:18
Andrew Meek
Thank you, Kate. I'd be very keen to come back, especially once I've had a chance to talk a little bit further and deeper with some of the firms within the new initiative. Yes, I would welcome an invitation. Thank you very much.
00:11:46:20 - 00:11:58:17
Kate O'Neill
Finally, how do people get involved who are perhaps in the Scale Box at the moment? Will there be opportunities — details on the website to get involved in maybe some roundtables, opportunities to give you feedback?
00:11:58:20 - 00:12:21:22
Andrew Meek
So we'll be writing to each of the firms that we are inviting specifically to take part in this initial initiative, in the coming weeks. We will also be writing to and speaking with the professional bodies and some of the other firms that currently audit within the UK. So we'll be reaching out ourselves over the next month or so as we set this up. In the meantime, we'd always welcome comments and expressions of interest to join our Scale Box function, or you can reach out and talk to our registration team about what it means to become PIE-registered. Any of those would be very welcome.
00:12:33:16 - 00:12:51:23
Kate O'Neill
Thank you Andrew. And as Andrew's outlined, there're many ways to get involved, or at least just to find out a bit more. We obviously have some information on our website currently about the Scale Box, but as Andrew says, we have a registration team. So if you are interested to find out more about the project and how to get involved, please make sure you make your voices heard. Thank you Andrew, and good luck with what's an important initiative for the FRC.
00:12:56:10 - 00:12:56:22
Andrew Meek
Thank you Kate.