FRC Annual Plan and Budget 2026/2027 – the FRC's plans for the next 12 months

We are now in the second year of the FRC's three-year plan (for 2025-2028) and the FRC's Annual Plan notes that the FRC's "purpose and strategic objectives remain unchanged".

The five major projects noted for 2026-2027 include: (1) End to End Enforcement in reviewing and modernising enforcement processes and procedures, (2) the Future Audit Supervision Strategy looking at the FRC's supervisory approach to the audit market, (3) enterprise resource planning being an internal focus for the FRC, (4) a programme to support SMEs and (5) the FRC innovation and improvement hub advancing innovation, quality and market resilience to increase regulatory certainty for stakeholders and promote outcomes based regulation.

In looking back at the FRC's four strategic objectives and the ones core to audit, the FRC notes the following progress – (1) proportionate regulation of accounting, audit, assurance and actuarial work – including two activities to support smaller firms – launching a project on building capability and capacity for smaller firms to help smaller firms in developing systems of quality management with the firms within this project receiving reduced formal inspection, supervision and registration requirements during 2026 and 2027 and the scalebox initiative to share best practice and build capability through targeted engagement and (2) identifying and preparing for opportunities and challenges on the horizon including guidance on AI in audit (published in June 2025) and developing an approach given greater participation by private capital in the ownership of UK audit firms, including consulting on amendments to the PIE Auditor Registration regulations.  In terms of changes already implemented, the FRC notes (1) the Future Audit Supervision Strategy project should begin to realise "the positive impacts of a more effective and proportionate regulatory approach", "removing unnecessary regulatory burdens while underpinning consistent audit quality" and (2) the updated End-to-End Enforcement should mean that FRC cases proceed to completion more quickly.

For 2026/27 the FRC plans to engage in the following taking into account its regulatory objectives; first, when it comes to standards and expectations proposals the FRC refers to the possible revision of TAS 310 (for actuarial standards) and maintaining standards and guidance relating to defined benefit pensions, maintaining UK auditing, ethics and independence standards and developing a new e-Money safeguarding standard.  The FRC also proposes to complete its annual revision of the digital reporting taxonomies suite, establishing a Pensions Illustration Task Force providing recommendations for pensions illustrations policy for defined contribution schemes and developing its approach for voluntary monitoring of actuarial work, ahead of the reforms in the Pension Schemes Bill.  Second for the regulation of accounting, audit and actuarial work, the FRC proposes to introduce a "more proportionate and graduated range of regulatory responses through the End-to-End Enforcement Review, including an Accelerated Procedure and Early Admissions process, delivering an evolved PIE audit supervisory model, enhancing a forward looking supervisor led supervision of audit firms targeting file reviews via a review of systems, alongside a proportionate programme of audit file inspections, introducing a new workstream within the scalebox to build capability and capacity for smaller firms to build a pipeline of credible challengers to provide audits to PIEs and developing the oversight of the 12 largest audit firms.  Third, in identifying and preparing for opportunities and challenges across the audit and actuarial market, the FRC says it will explore whether the audit qualification needs to change in response to AI, ESG and other changes to audit work and undertake research and analysis to inform regulatory activities including audit quality reviews and corporate reporting reviews.

The FRC's headcount is to remain flat but it (1) targets 140-150 audit quality review inspections (the same as for 2025/26 with 141 having been completed in 2024/25) and (2) targets concluding 50% of enforcement cases within 3 years (90% was achieve in 2024/25 and 53% in 2023/24 and this target remains the same at 50% for 25/26 and 26/27).

The FRC is in the middle of its 3 year plan so there are no dramatic changes as it continues to evolve its approach to enforcement and regulation, that said, the approach to files review by effectively adopting an audit type approach – looking at systems and focussing files reviews from that – does seem to indicate a step change.  There is no mention at all of the Audit Reform Bill being pulled by the Labour government but the approach of the FRC to such as the scalebox continues some of the themes we were expecting to see in the Audit Reform Bill in terms of encouraging and supporting smaller firms to get involved in larger audits.  An interesting proposal is to review audit qualifications given the forward-looking nature of issues such as ESG and the issues surrounding the audit of black box AI which pose new challenges for the audit profession and its encouraging to see the FRC identifying these issues.