Audit quality is rising at the top – but falling further behind for the rest.

That’s the central message of the FRC’s Annual Review of Audit Quality 2025, which lays bare a growing divergence in audit performance across the UK market. While Tier 1 firms (the Big 4 plus BDO and Forvis Mazars) continue to show improvements, smaller and mid-tier firms are struggling to maintain standards, particularly when it comes to staffing, delivery oversight, and the risks of unstructured outsourcing.

For firms navigating tight margins, talent shortages, and increasing regulatory pressure, the message is clear:

Audit delivery models must evolve – not just to scale, but to safeguard trust.

In this post, we unpack key findings from the FRC report, explore the implications for outsourcing and shared service models, and explain why firms need to reimagine capacity – intelligently, ethically, and sustainably.

Key Findings from the FRC 2025 Report

Audit Quality is Improving at the Top

• 86% of Tier 1 audits required no more than limited improvements (up from 74% last year).
• The Big 4 have made notable progress with SoQMs (Systems of Quality Management), culture, and operational separation.
• FTSE 350 audit quality remains strong, with 85% rated positively.

This shows that sustained investment in governance, review structures, and audit-specific culture pays off.

⚠️ Tier 2 and 3 Firms Are Falling Behind

• Only 38% of Tier 2/3 audits reached the same “good or limited improvement” standard.
• 31% of reviewed audits required significant improvements – a third of the sample.
• Common failings include:
  • Weak engagement oversight
  • Insufficient remediation of prior issues
  • Ethics and independence breaches
  • Incomplete going concern assessments

These risks pose a systemic threat to market confidence – especially as reliance on offshore teams and shared service models increases.

The Outsourcing Dilemma: Efficiency vs. Accountability

While outsourcing and offshoring are often positioned as tools for efficiency, the FRC issues a strong warning: they are not a substitute for quality.

“Firms must ensure that work performed by offshore resources complies with UK ethical and quality standards. Oversight, integration into SoQMs, and clear accountability are non-negotiable.”
– FRC 2025 Annual Review

The challenge? Many firms – especially those outside the top tier – are outsourcing tasks without robust systems to monitor, review, and govern that work. The result is predictable: audit quality suffers, and public trust erodes.

Why Audit Capacity Needs Reinvention – Not Just Resourcing

The FRC report comes at a time when the profession is facing multiple structural pressures:

• 📉 Decline in UK-based accounting graduates
• 🧯 Talent attrition and burnout during busy season
• 📊 Rising complexity in audits (climate risk, tech, group structures)
• 💷 Fee pressure and pricing sensitivity, especially in SME audits

Traditional approaches to resourcing – hiring locally or outsourcing offshore – are no longer sufficient or scalable. What firms need is capacity that flexes, complies, and uplifts quality – not compromises it.

Enter CapacityHive: Intelligent Audit Delivery, Designed for This Moment

At CapacityHive, we’ve spent years studying the challenges laid out in this report. Our model is built from the ground up to support firms that want to scale without sacrificing quality.

We are not a “body shop,” and we’re not just another SSC. We are a tech-enabled, compliance-aligned audit capacity partner with a focus on:

Regulatory-aligned delivery

• Built around ISQM1 and ethical standards
• Full documentation, traceability, and accountability
• Transparent oversight and UK-qualified managers

Purpose-built audit teams

• Sector-specialised talent embedded into your firm’s way of working
• Staff trained on UK audit methodology, tools, and workflows
• Flexible pods aligned to your internal teams and peak periods

Intelligence > outsourcing

• Delivery models designed around governance, quality, and SoQM integration
• Not just doing tasks – improving outcomes
• Trusted by growing mid-tier and international firms to close the quality gap

Reinventing Capacity Isn’t Optional – It’s Urgent

The FRC’s data tells a stark story:

• 5 of 16 Tier 2/3 audits reviewed required significant improvements
• Ethics breaches continue to arise in poorly governed audits
• SSC usage is increasing – but not always responsibly

And yet, capacity is the lever that can turn this around.

Rather than abandoning shared service models, the smart move is to upgrade them – embed them into the firm’s SoQM, align them with UK expectations, and engineer quality at scale.

That’s exactly what CapacityHive is built for.

The Data Behind the Trends

Here are a few statistics from the FRC report that firms should be thinking about:

Where Firms Go From Here

To navigate the year ahead – and prepare for AQ2030 and regulatory reform – firms need to rethink their audit delivery model. The choice is no longer binary (hire more or outsource cheaply). The real choice is:

Continue firefighting quality risks – or invest in intelligent capacity that builds resilience.

CapacityHive is already supporting audit firms across the UK, Ireland, and internationally in doing just that – from ad hoc projects to full seasonal scaling strategies.

📣 Let’s Talk

Whether you’re a managing partner, audit lead, or COO, if you’re wrestling with:

• Capacity planning
• Quality management
• SSC oversight
• Resourcing for growth
  

…then we’d love to show you what smart audit delivery can look like

• FRC-aligned
• Scalable without sacrificing control
• Tailored to your firm’s tech, tools, and culture
• Trusted by firms facing the same pressures you are

🔁 Are you ready to build the future of audit capacity – not just patch the present?

Let’s talk. Contact CapacityHive

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