The Financial Reporting Council has sharply criticised BDO’s audit quality, calling its work “significantly short of expectations” and placing the firm under close watch, despite a modest year-on-year improvement.
The Financial Reporting Council (FRC) has issued a stern warning to BDO after the regulator’s annual inspection identified persistent shortcomings in the firm’s audit quality, placing it at the bottom of the latest league table of major audit providers.
Only half of the BDO audits reviewed by the FRC were deemed satisfactory, defined as requiring “no more than limited improvement.”
While that represents an improvement from last year’s figure of 38 per cent, the regulator concluded that BDO’s audit work still fell “significantly short of expectations.”
The FRC has called on BDO to “urgently and robustly reassess how to improve its audit quality,” adding that the firm “must not be complacent and ensure change happens at pace.”
The annual inspection examined 104 audits conducted by the Big Four, BDO, and Forvis Mazars.
In BDO’s case, the FRC reviewed a sample of 14 audit files out of 206 eligible for inspection, from a total portfolio of 6,805 audited entities.
Despite its recent success in winning work from public interest entities (PIEs)—including listed companies, banks and insurers—BDO’s progress on quality lags behind peers.
The firm currently audits the third-highest number of PIEs, a notable feat for a mid-tier player aiming to challenge the dominance of the Big Four. Yet the FRC’s findings underscore the risks of growth without consistent quality controls.
Dominic Stammers, Head of Audit at BDO, responded: “We have a clear plan in place to address the FRC’s findings and embed improvements across our audit practice.”
The FRC has maintained BDO under enhanced scrutiny and continues to push for reform across the audit market. Efforts to boost competition and reduce market concentration have been complicated by government decisions to shelve some key audit reform proposals.
The regulator has sought to encourage stronger participation from mid-tier firms but insists that quality cannot be compromised in the process.
Meanwhile, rival mid-tier firm Forvis Mazars showed marked improvement. The FRC found that 90 per cent of its audits required no more than limited improvement, up from 44 per cent in the previous year.
While describing the result as “encouraging,” the FRC cautioned that this does not yet represent a consistent trend.
“There continues to be a gap between the larger and other firms in the [public interest entity] market,” said Sarah Rapson, the FRC’s Executive Director of Supervision.
Across the board, the Big Four firms—Deloitte, EY, KPMG and PwC—demonstrated “steady and consistent improvement” in audit quality, according to the FRC.
The FRC’s annual inspection results form part of a broader regulatory push to restore confidence in UK audit standards following a series of high-profile corporate failures, including Carillion and Patisserie Valerie, where audit lapses were widely criticised.
