FRC Audit Quality Reviews: 2025 Requirements and Expectations

The Financial Reporting Council (FRC) has enhanced its audit quality review framework for 2025, introducing more rigorous expectations for audit firms and placing greater emphasis on professional scepticism, risk assessment, and documentation quality. For finance directors of companies subject to statutory audit, understanding these evolving requirements is essential for ensuring audit quality and regulatory compliance.

Enhanced Quality Review Framework

The FRC's 2025 audit quality review framework reflects lessons learned from recent corporate failures and regulatory interventions. The enhanced framework places particular emphasis on audit firms' systems of quality management, including leadership responsibilities, ethical requirements, and engagement quality control.

Finance directors should expect their audit firms to demonstrate robust quality management systems, with clear accountability for audit quality at partner level and effective monitoring of engagement quality. The FRC's reviews will assess whether audit firms have appropriate policies and procedures in place, and whether these are being consistently applied across all audit engagements.

Professional Scepticism Requirements

The 2025 framework places renewed emphasis on professional scepticism, requiring auditors to challenge management assumptions, test evidence rigorously, and maintain an independent mindset throughout the audit process. Finance directors should be prepared for more probing questions and detailed testing of significant accounting estimates and judgements.

Management Representations

Auditors are expected to obtain robust management representations, but these cannot be relied upon as the sole source of audit evidence. Finance directors should expect auditors to independently verify information provided by management, particularly in areas involving significant judgement or estimates.

Risk Assessment and Response

The enhanced framework requires audit firms to demonstrate thorough risk assessment processes, with clear linkage between identified risks and audit procedures. Finance directors should expect auditors to spend more time understanding the business, its environment, and internal controls before designing audit procedures.

Documentation Standards

Audit documentation requirements have been strengthened, with the FRC expecting clear documentation of audit judgements, conclusions, and the basis for audit opinions. Finance directors should be aware that enhanced documentation may require more time from management, particularly in providing explanations and supporting evidence for significant transactions.

Implications for Finance Directors

Finance directors should work proactively with their audit firms to ensure audit quality, including:

• Providing timely access to information and supporting documentation
• Maintaining robust internal controls and documentation of key judgements
• Engaging early with auditors on significant transactions and accounting policy changes
• Ensuring management representations are accurate and supported by evidence
• Supporting auditors' independence and professional scepticism

Conclusion

The FRC's enhanced audit quality review framework for 2025 reflects the regulator's commitment to improving audit quality across the UK market. Finance directors who understand these requirements and work collaboratively with their audit firms will benefit from higher quality audits and reduced regulatory risk.