Audit reform stalled, frustration or opportunity?
After a long and fatiguing journey, which began in 2018, peppered with a few false starts, 2026 started with the news that the Government had shelved the long-awaited, debated Bill on Audit and Corporate Governance Reform.
Whatever the reasons given for the decision, and there are many, the twists and turns of the journey have not helped the profession. They created a new expectation gap for audit firms, making it difficult to plan and make key strategic decisions with confidence. Some of the narratives expressed during this journey portrayed the profession unfavourably and may well have influenced the thinking of those people making career choices to enter or remain in the profession.
Some commentators highlight that the absence of audit reform may increase the risk of audit failure. This may well be true, but the pause in audit reform may benefit our profession. I say this as a challenge with regulation is that it is often rules-based. As well-intentioned as those rules are, they don’t necessarily change behaviours such as professional scepticism and challenge. As a profession, it would do us no harm to use this pause to address these actual and perceived shortcomings ourselves, which may reduce the nature and scale of future regulation and restore trust in, and the attractiveness of our profession.
Late last year and early this year, we heard from the FRC, ICAEW and CPIA that the quality of, and confidence in, audit is improving. Rather than lamenting the shelving of audit reform, we should leverage advances in technology to reimagine and re-engineer our audit firms to maintain, if not accelerate, the inroads being made into quality improvement.
The debate on audit reform and regulation is important, but it feels a little philosophical when there is more than enough going on that impacts firms and their audit teams now.
Firm wide
ISQM1 has been around for a while; both the FRC and QAD have published review findings that include examples of good practice that have benefited the firms. They have also identified room for improvement. It is fair to say that regulators have tried to be pragmatic and supportive of firms as they embed this not-so-new standard. However, I sense the mood could be changing, and their monitoring approach may become more tenacious.
2026 is the year firms, who have not already done so, should embrace the objectives of ISQM1; if applied properly and not viewed as a discrete compliance activity, it will deliver many benefits to the firm, which will flow through to exceptional client service and profitability.
Engagement Level
The revisions to FRS 102, first announced in March 2024, are now effective for periods beginning on or after 1January 2026.
Provided your client hasn’td ecided to early adopt FRS 102 (Revised), don’t assume that the real audit impact is still a year away. While some comparatives don’t need to be restated, there are transition considerations, calculations, and disclosures to work through that will be much harder in 2027. Some changes, such as those relating to supplier finance arrangements, came into effect on 1 January 2025. Given the recurring cash flow statement challenges identified by the FRC, ensure your teams are on top of this.
When dealing with these changes, ensure a focus on helping client does not result in an unintended ethical breach. Recommending methods, policy choices, calculating relevant amounts and drafting disclosures could see audit teams Crossing the Line and be exposed to a self-review threat. There may be circumstances where management needs to involve another firm to assist with the transition. Don’t see this as a threat; the incremental fee loss will be small relative to the costs of defending a challenge down the line.
After a few years of respite, auditing standards — especially around fraud, going concern, and audit reports — are set to change.
ISA 240 (UK): Fraud. The proposed revisions aim to align the UK approach with the IAASB’s enhanced fraud standard and are expected to take effect from 15 December 2026. There are probably four thematic changes:
- A more explicit “fraud mindset”
- More robust risk assessment procedures
- Greater transparency in communications and reporting
- Scalability and proportionality
ISA 570: Going concern:The revised standard is likely to require a more robust, evidence-based evaluation of management’s going-concern assessment, recognising that financial distress and fraud risks often coexist.
Practical implications
The implementation date for bothISAs is in late 2026; however, now is the time to start planning for change, managing internal and external expectations and gearing up resources accordingly.
Expect to spend more time on fraud brainstorming and planning, enhanced documentation to reduce litigation exposure and withstand inspection, integration of data analytics tools (linked to AI), and a more comprehensive challenge of management representations.
For going concern, audit teams should perform a robust and objective risk assessment at the planning phase and avoid the temptation of deferring challenge to the completion. Expect more scrutiny of cash flow forecasts, stress testing, and sensitivity analysis.
Even without regulatory change, we are living and working in a more challenging economy. Going concern and the associated fraud risk could well be heightened risk factors and will need thoughtful consideration.
Resource, a perennial challenge
In 2026, resource and workflow management will be key to quality and profitability, more so than ever. Retention is under pressure, with workload and work-life balance repeatedly identified as primary drivers of attrition. Compounding this challenge is the reported decline in new entrants into audit. The increasing complexity of the entities being audited adds further strain. Anecdotally, I am seeing firms being more selective in the work they retain and take on. This increases the risk that entities will be unable to find auditors.
However, ISQM1 reminds us that resources are not just about people; they include technology and intellectual resources, both of which are being enhanced with AI. Increasing availability and affordability of these technological and intellectual resources give firms the opportunity to re-engineer their practices.
Re-engineering
It is said that necessity is the mother of all invention; 2026 is likely to see firms continuing to test this maxim. As resource challenges continue to be a barrier to quality and growth,2026 is likely to see more firms leverage technology and AI to reduce friction in managing and analysing data and supporting, not replacing, critical thinking.
Those most likely to succeed are those who thoughtfully and strategically embrace technology and AI to automate routine work, enable flexible working, and modernise career pathways to improve attraction and retention. Such tools provide practical support for applying scepticism and challenging.
Leveraging technologies is more than just bolting on a new tool or application onto existing systems and processes. To maximise value, firms will need the confidence to reimagine how they operate their businesses and deliver engagements. In this regard, AI is poised to play a transformative role in 2026 audits, providing a competitive advantage.
Areas where technology, particularly AI, is likely to increase its presence are:
Firm Level
- Acceptance and continuance decisions
- ISQM1 Practice oversight:
- Risk assessment and mapping
- Understanding the client base
- Ethical threats
- Talent management and workflow
Engagement Level
- Understanding the entity and its environment
- Enhanced risk assessment
- Analytical procedures
- Fraud risk assessment and detection
- Developing robust and efficient testing strategies
- Supporting professional scepticism
Technology and AI can also drive whole-firm efficiency and provide greater insights into your firm, which is important if you're planning to sell in the near future, particularly to private equity, or simply seeking to attract new talent.
Conclusion: 2026 is about technical depth and technological acceleration — under workforce pressure
It is difficult to look at 2026 in isolation, as it is undoubtedly a stepping stone in the fast-paced evolution of audit.
Whatever your plans, 2026 is the year to refresh your IT and AI strategies and business model, which can improve capacity, capability, and efficiency and, if done properly, increase the value of your practice.
- Adapt early, embed new methodologies, and maintain quality under greater scrutiny and tighter staffing.
- Prepare for a more data-intensive, judgement-heavy and technologically enabled audit environment — and plan resourcing accordingly.
However, these decisions should not be made in isolation; they should form part of an integrated resourcing strategy that aims to future-proof the firm for the near to medium term.
