The UK’s Financial Reporting Council (FRC) has issued a stern rebuke to mid-tier accounting firm BDO, citing that its audit work “significantly fell short of expectations.” According to the FRC’s latest annual inspection report, only 50 percent of BDO’s audits required “no more than limited improvement” — a modest gain from 38 percent the previous year but still the lowest score among its peers.
The FRC made it clear that despite slight progress, BDO’s audit quality remains a concern. “BDO must urgently and robustly reassess how to improve its audit quality,” the FRC stated. The regulator confirmed that BDO would remain under “close supervision” and urged the firm to “ensure change happens at pace.”
The audit watchdog inspected a sample of 14 audit files from BDO, selected from 206 reviews in scope out of a total of 6,805 audited entities. The FRC’s inspection included work from the Big Four (Deloitte, EY, KPMG, and PwC) and two mid-tier firms — BDO and Forvis Mazars.
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BDO’s weak showing comes despite its growing presence in the high-stakes public interest entity (PIE) audit market, which includes listed companies, banks, and insurers. BDO now audits the third-largest number of PIEs, underscoring the significance of the FRC’s findings as the firm attempts to position itself as a credible alternative to the Big Four.
The results highlight the broader challenge facing mid-tier firms. While the FRC has backed reforms to encourage competition in the audit sector, its progress has been impeded by the government shelving key policy changes that would have helped shake up the entrenched dominance of the Big Four.
“There continues to be a gap between the larger and other firms in the public interest entity market,” said FRC’s Executive Director of Supervision, suggesting that parity in audit quality remains elusive.
Forvis Mazars Sees Turnaround, Big Four Maintain Consistency
In contrast to BDO, fellow mid-tier firm Forvis Mazars made a significant leap in audit quality. The FRC reported that 90 percent of Forvis Mazars’ audits required no more than limited improvement, a dramatic improvement from 44 percent last year. While the FRC found the progress “encouraging,” it cautioned that one year’s performance did not yet indicate a consistent trend.
The Big Four accounting giants showed “steady and consistent improvement” in their audit quality over the review period, reinforcing their dominance in the sector. These firms continue to maintain a strong grip over large UK company audits, despite ongoing criticism over past failures to detect corporate collapses like Carillion and Patisserie Valerie.
Dominic Stammers, Head of Audit at BDO, responded to the FRC’s report stating, “We have a clear plan in place to address the FRC’s findings and embed improvements across our audit practice.”
