Big Accounting Firms Fail to Track AI Impact on Audit Quality, Says Regulator
TL;DR:
- Major accounting firms are not monitoring the impacts of AI tools on audit quality.
- The Financial Reporting Council (FRC) found that firms lack key performance indicators for automated tools.
- Though AI usage is increasing, concerns about bias, ethics, and transparency remain at the forefront of regulatory discussions.
- Guidance from the FRC highlights the need for firms to implement measures to evaluate AI’s effectiveness in audits.
Introduction
In a recent report by the Financial Reporting Council (FRC), it was revealed that the six largest accounting firms in the UK have been negligent in monitoring how artificial intelligence (AI) tools impact the quality of audits. Despite the rapid adoption of such technologies across the profession, these firms have reportedly failed to track performance indicators necessary for assessing the effectiveness of automated audit tools. This oversight poses serious implications for audit reliability and the broader financial regulatory landscape.
The FRC's Findings
The FRC pointed out that the dominant players in the UK accounting sector, which include Deloitte, Ernst & Young (EY), KPMG, and PricewaterhouseCoopers (PwC), along with smaller firms like BDO and Mazars, have largely focused their monitoring on usage metrics rather than the quality outcomes of their AI-driven processes. For instance, the review revealed:
No Formal Monitoring: The FRC found that no formal assessments are in place to measure the audit quality impact stemming from the use of AI.
Audit Tools in Use: Audit teams are utilizing AI for various tasks such as risk assessments and evidence gathering, but monitoring practices largely center on how many teams are using these tools, often for licensing purposes rather than quality evaluation.
Addressing AI Challenges in Auditing
The FRC's review comes alongside the publication of its inaugural AI guidance, which aims to address potential risks and challenges associated with AI in audits. The report emphasizes the importance of understanding how AI functions, especially given the ethical implications and potential for bias embedded in automated systems.
Mark Babington, FRC Executive Director of Regulatory Standards, emphasized the need for firms to define metrics that evaluate their AI tools. He stated:
"AI tools are now moving beyond experimentation to becoming a reality in certain audit scenarios. When deployed responsibly, they have significant potential to enhance audit quality."
This underscores the urgency for firms to adapt their monitoring and evaluation processes to ensure AI technology assists rather than compromises the integrity of audit work.
The Road Ahead
As AI becomes an integral part of the auditing process, accounting firms must confront several challenges, including:
Transparency and Explainability: There is ongoing concern regarding how AI decisions are made, necessitating clearer guidelines on how results are derived.
AI Bias: The risk of bias in AI models must be addressed, as it may lead to inaccurate conclusions in audits.
Data Privacy: Safeguarding client data remains critical, especially as firms work collaboratively with AI technologies that leverage sensitive information.
Despite these challenges, the potential benefits of AI in enhancing audit quality are significant. With the guidance provided by the FRC, audit firms have the opportunity to establish frameworks that ensure the responsible use of AI, fostering both innovation and trust in automated processes.
Conclusion
The findings from the FRC's review reveal a crucial gap in the monitoring of AI's impact on audit quality within major accounting firms. As the use of AI tools escalates, the importance of establishing effective performance indicators and governing principles cannot be overstated. With proper guidance and a commitment to ethical standards, the accounting profession can harness the transformative potential of AI while mitigating its risks.
References
[^1]: "Big Accounting Firms Fail To Track AI Impact on Audit Quality, Says Regulator." Financial Times. (2025-06-27). Retrieved October 20, 2023.
[^2]: "Big accountancy firms fail to monitor AI's impact on audit quality." Accountancy Age. (2025-06-27). Retrieved October 20, 2023.
[^3]: "Big accounting firms fail to track AI impact on audit quality, says regulator." Business Post. (2025-06-27). Retrieved October 20, 2023.
[^4]: "FRC: Major accounting firms using AI without quality oversight." Scottish Financial News. (2025-06-27). Retrieved October 20, 2023.
[^5]: "AI returns have not yet justified investment mania." Financial Times. (2025-06-27). Retrieved October 20, 2023.
[^6]: "Early reports suggest substantial challenges for AI integration in audits.” Slashdot. (2025-06-27). Retrieved October 20, 2023.
