The largest audit firms must show more consistency in their work, while others should accelerate the pace of improvement, according to the latest review of audit quality.

According to reports from the Financial Reporting Council,  penalties of £18.2m were issued in 2025-26 by the UK’s key governance watchdog, up on the £14.5m of the previous year. Of the investigations opened in the year, 75% were about auditors.

The report says the UK’s largest six audit firms show “continued maturity” but “must translate improvement into consistent execution”. Only a single audit from those inspected required “significant improvement”.

On smaller firms, the FRC said there was progress in quality “but there is a need to accelerate the pace and depth of change”.

Anthony Barrett, executive director of supervision at the FRC, says: “It is encouraging that audit quality continues to improve, but it is not yet being delivered consistently across the market.

“Strengthening the systems within firms that underpin audit delivery is therefore critical.

“Well-designed and effectively operating systems of quality management create the conditions for high-quality audit to be delivered.”

Of the 41 investigations by the FRC in 2025-26, three-quarters focused on the work of auditors. Of the 11 cases that concluded in sanctions during the year, nine were for audits.

The total of £18.2m in sanctions imposed is markedly down on the peak of £48.2m in 2023-24.

Misconduct in audits

The largest total sanction in the most recent year—£6.8m before discounts for cooperation—was imposed on BDO and two engagement partners, following admission of “misconduct” for work across a number of audits. BDO was also fined £2m before discounts for work on the audit of NMCN, a construction firm.

Elsewhere, PwC faced a fine before discounts of £5.6m for work on the audit of Babcock International in 2019 and 2020.

KPMG was also in the sights of the watchdog, reaching a fine of £1.34m (before discounts) for the audit of N Brown Group, the fashion brand.

In their audit work, the largest audit firms all appeared to struggle with impairment of non-current assets. Other common issues were auditing revenue, dividends and inventory. Ethics and independence were highlighted as issues in the audits inspected of PwC and EY.

The reports comes in the same year the government called off any further reform of audit, the audit market and audit regulation. It has pledged to continue with placing the FRC on a statutory footing, which may give the watchdog more powers, but so far legislation has yet to appear.