FRC launches ‘scalebox’ to help smaller firms challenge Big Four dominance
The Financial Reporting Council has unveiled a new scalebox initiative to mentor smaller audit firms and improve competition with the Big Four.
The Financial Reporting Council (FRC) has unveiled a new coaching initiative designed to help smaller audit firms compete with the Big Four in the audits of Britain’s largest companies.
The so-called “scalebox” programme will invite challenger firms to participate in tailored mentoring and improvement plans aimed at enhancing audit quality for public interest entities (PIEs), including listed companies and financial institutions.
Participating firms will benefit from reduced regulatory hurdles and, in some cases, exemptions from FRC inspections while they implement the recommended improvements.
Richard Moriarty, chief executive of the FRC, said the regulator would provide “a more forbearing formal regulatory oversight” but added that “accountability for improvement will, however, rest firmly with the audit firms themselves and a condition of remaining in the programme is that we see progress over time.”
The move responds to longstanding concerns about the concentration of the audit market. In 2023, Deloitte, EY, KPMG, and PwC audited 98% of the FTSE 100, a dominance that has prompted scrutiny over conflicts of interest.
A notable example was HSBC’s difficulty in attracting audit bids in 2021 due to lucrative consulting contracts held by the Big Four, according to the Financial Times.
Challenger firms have traditionally struggled to meet the FRC’s exacting quality standards. The regulator’s recent review found that 65% of PIE audits by firms outside the top 12 required “significant improvements,” a gap highlighted by high-profile corporate failures such as Carillion.
These quality concerns have led some challenger firms to scale back their PIE work despite overall growth in the market, and even successful firms such as BDO have faced criticism.
The FRC hopes the scalebox will help cultivate a more competitive audit market by giving smaller firms the support to improve quality while challenging the entrenched position of the Big Four.
