Audit quality in the UK has improved again, but the audit watchdog remains concerned about professional scepticism across audit firms.

The Financial Reporting Council (FRC) has published its second Developments in Audit report, which concludes that leadership in audit is paying off, particularly for audits of large companies. But there remain issues.

The FRC said in its report: “…the picture is not consistent across all firms, market sectors and audit procedures. High-profile accounting failures, as well as the results of our audit monitoring, continue to identify cases where auditors have not met expectations.

“Whilst we see evidence of greater professional scepticism for example, this is also the area where we continue to find the greatest number of issues and problems with the way auditors are conducting their work.”

Audits among FTSE350 companies inspected by the FRC that were either “good” or “requiring limited improvements” amounted to 81%, up from 77% last year.

Among non-FTSE350 companies, the figure has dropped back from 74% to 72%.

Melanie McLaren, the FRC’s executive director for audit and actuarial regulation, said: “In our monitoring of audit quality we have yet to see overwhelming evidence of improvement in all sections of the market or the consistency of performance we want between different firms.

“Firms are though investing in improvement measures, and those audit committees surveyed report that they are seeing evidence of good-quality audit.”

She continued: “Firms are focused on areas including their leadership, governance and culture, better use of technology and quality management systems.

“This year we will focus on how we can enhance the speed and effectiveness of our enforcement role underpinning justifiable confidence in audit.”