Audit quality remains strong in 2026 – consistency is now the aim

Last year, we welcomed evidence that audit quality was rising and called for the Financial Reporting Council (FRC) to combine clear expectations with practical examples of good work and greater transparency about remediation. The 2026 Annual Review of Audit Quality published today presents a more nuanced picture.

The headline measure is unchanged: 79% of the 116 audits inspected by the FRC were assessed requiring no more than limited improvements, the same proportion as in 2024/25. Yet beneath that maintained figure are meaningful shifts. Only three audits required significant improvement, down from ten, while results outside the largest firms and those from the Recognised Supervisory Bodies (RSBs), regulating on behalf of the FRC, moved in the right direction.

Progress in audit quality has not stopped – but stronger systems are now needed to produce more consistent execution on every engagement.

What is improving?

The reduction in audits requiring significant improvement is the clearest positive. A fall from ten audits to three is material.

There is also encouraging movement beyond the largest six firms. Among other public interest entity (PIE) audit firms, 46% of FRC inspections required no more than limited improvement, up from 38% last year and 21% two years ago. The level remains too low, but the direction is positive. RSB results strengthened too: 92% of audits inspected across PIE-registered firms were assessed as good or generally acceptable, compared with 81% in 2024/25.

The FRC also reports continued improvement in how firms monitor their Systems of Quality Management (SoQMs), evaluate results and identify deficiencies. The largest four firms continue to have mature, well-established systems, and each achieved positive FRC outcomes for at least 89% of the audits inspected for the second year running.

Several recurring technical areas improved. The proportion of inspections with findings fell from 50% to 30% for provisions, from 48% to 26% for inventory, and from 53% to 36% for ethics and independence. Adverse findings on valuations also reduced, from 33% to 29%.

What is broadly stable?

Overall audit quality is best described as robust and stable rather than rising. For the largest six firms, the proportion of inspected audits requiring no more than limited improvement eased from 86% to 83%, although this level remains higher than the 74% recorded in 2023/24. Deloitte, EY, KPMG and PwC, in particular, have sustained the quality gains made over the past five years, while the FRC has also noted Forvis Mazars’ improving five-year trend.

Stability in quality from the largest six firms, however, should not be confused with consistency. Another learning from the review reinforces a familiar point: high-quality processes at firm level are not automatically guaranteeing high-quality work on every file. SoQMs are essential, but their value depends on whether they change behaviour, improve challenge and support timely intervention during live audits. Some audits have shown that issues are still arising despite the presence of strong systems.

Where progress is too slow – or moving backwards?

Impairment and revenue remain the most stubborn areas. Impairment was an issue in 49% of inspections with findings, slightly up from 47%, and the number of key impairment findings rose from seven to eleven. Revenue issues also slightly increased from 19% to 24% of inspections with findings. Both areas have appeared repeatedly in previous reviews because they demand robust testing of assumptions, evidence and management judgement.

According to the FRC’s findings, the quality gap between the largest firms and the rest of the PIE market remains substantial. Fewer than half of the inspected PIE audits by firms outside the largest six achieved a positive outcome. And even among larger challenger firms, the proportion of audits requiring no more than limited improvements is not where the FRC would like it to be. Capacity, capability and the maturity of quality management systems continue to vary sharply. While the improvements made by smaller firms are welcome, there is still significant progress which needs to be made for the overall health of the market.

Turning systems into better audits

The 2026 review provides more practical detail than its predecessor. The root cause analysis highlights remediation being required for ineffective planning, over-reliance on prior-year approaches, unclear responsibilities, late involvement of senior reviewers and specialists, and behavioural biases that weaken professional scepticism. It also brings firm-specific findings into a single publication and gives clearer examples of remediation and good practice.

That responds in part to our call last year for the FRC to show not only what went wrong, but how improvement can be delivered. The next step is to make remediation outcomes more visible over time. Firms should be able to demonstrate that actions have improved audit execution, not simply that new guidance, training or controls have been introduced. The FRC should continue publishing thematic work and anonymised case studies showing which interventions prove effective in later inspection cycles, so that all firms can learn from what good looks like.

Audit committees also have a role. The latest Audit Firm Metrics can support stronger conversations about workload, partner involvement, internal inspection results and staff attrition, but they should be used alongside engagement-specific evidence. A strong firm-wide average is not a substitute for asking whether the proposed team has the capacity and expertise needed for a particular audit.

Final thoughts

The 2026 results represent consolidation rather than acceleration. Fewer seriously deficient audits, stronger RSB results and progress among smaller and mid-market firms are welcome. But persistent findings in relation to impairment and revenue audit and the continued gap across the PIE market show why momentum cannot be taken for granted.

This matters as audit firms increasingly adopt ever more powerful AI, expand remote delivery models and respond to new ownership and investment structures. Innovation can strengthen quality, but only where governance, human oversight and accountability keep pace. The profession should judge success not simply by whether most audits clear a headline category, but by whether high-quality work becomes routine regardless of firm, sector or engagement team. Consistency should now be the aim and the 2026 review shows there is still work to do to achieve this.