The quality of audits of FTSE 350 companies in the UK has steadily improved over recent years, according to the latest audit reviews undertaken by the country's regulator, the Financial Reporting Council (FRC), however more work is needed to ensure improvements of audits of smaller companies.

The FRC found that 81% of FTSE 350 audits reviewed in 2016/17 were categorised as requiring no more than limited improvements, compared to 77% in 2015/16 and 70% in 2014/15. The FRC has set a target that at least 90% of FTSE 350 audits reviewed should require no more than limited improvements by 2018/19.

Outside the FTSE 350, however, the FRC said that there was a higher proportion of audits that required more than limited improvements. As a result, the FRC said it was reporting no overall change this year in audit quality across all the audits it reviewed. The FRC issued reports on the largest six audit firms – BDO, Deloitte, EY, Grant Thornton, KPMG and PwC which set out identified areas of good practice, key areas requiring improvement and the actions each firm, having carried out root cause analysis, proposes to take.

Melanie McLaren, FRC’s executive director for audit and actuarial regulation, said: “High quality audit underpins public trust and confidence in business. Audit firm leaderships’ focus on audit quality is a key driver of good audits and is vital to promoting a culture of continuous improvement. While the progress made by individual firms differs, all firms are investing in audit quality and have set out further action to improve.”

The FRC said that some of the improvements underpinning audit quality that it had seen included firms’ leaderships implementing or further developing significant firm or network-wide audit quality improvement programmes; the adoption of better guidance and training on the use of specialists and strengthened internal monitoring arrangements.

However the FRC also identified key areas where further improvement was required and the firms plan actions include the challenge of management in key areas involving judgement, such as impairment reviews, asset valuations and provisions; the design and execution of audit procedures relating to revenue recognition and systems and arrangements for ensuring compliance with ethical and independence requirements.