Big accountancy firms fail to monitor AI’s impact on audit quality, says FRC
The FRC has warned that big accountancy firms aren’t tracking how AI tools affect audit quality, raising concerns over oversight amid growing reliance on automation.
The Financial Reporting Council (FRC) has raised concerns over the UK’s largest audit firms’ failure to measure how artificial intelligence and automated tools are affecting audit quality, despite widespread use across the profession.
In a new review published alongside its first-ever guidance on AI, the FRC found that the Big Four—Deloitte, EY, KPMG and PwC—alongside BDO and Forvis Mazars, have embedded AI-powered technologies into their audit processes without formally assessing the effect on audit quality.
“AI tools are now moving beyond experimentation to becoming a reality in certain audit scenarios,” said Mark Babington, executive director of regulatory standards at the FRC.
But the regulator warned that the benefits will only materialise “if tools produce consistently reliable outputs and are used routinely in the intended manner.”
Missing metrics, rising risks
The FRC said that while these firms track usage—typically for licensing or rollout purposes—none, bar one unnamed firm, had defined key performance indicators (KPIs) to monitor the tools’ contribution to audit quality.
The use of generative AI was noted but excluded from the review’s scope.
Tools in use include transaction analysis engines, contract data extractors and summarisation software. KPMG’s AI transaction scoring scans millions of entries to flag anomalies of interest to auditors.
Deloitte is using AI to streamline time-intensive tasks, including reviewing board minutes and complex contract analysis.
However, despite these advances, the FRC noted a lack of structured measurement.
“There is no formal monitoring performed by the firms to quantify the audit quality impact of using [automated tools],” the report stated.
Scrutiny amid audit failings
The watchdog’s focus on AI comes at a time of continued pressure on audit quality.
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BDO and Forvis Mazars have been criticised for shortcomings in multiple annual FRC reviews, while EY is still seeking to restore its audit reputation following its role in the Wirecard scandal, pledging $2bn to audit improvements by 2026.
Emily Jefferis, KPMG UK’s head of audit quality, said assessing AI’s impact on audit quality is “a subjective matter,” but added:
“We carefully monitor the adoption of all our tools using a range of KPIs and have the aim of putting AI in the hands of every auditor for use in every engagement. We are currently close to that target.”
The FRC is now urging firms to modernise oversight and define clear performance measures to ensure AI is deployed responsibly—underscoring that ethical risks, bias and inconsistent use could undermine both quality and public trust.
