Audit campaign launched to support SMEs

9th April 2025

Audit Campaign

The Financial Reporting Council (FRC) has launched a year-long campaign to assist small and medium-sized enterprises (SMEs) with their reporting burdens. Designed to improve companies’ access to capital and support their growth, it will examine how SMEs undertake financial reporting and how the FRC can help them access audit services at a reasonable scale and cost.

SMEs form the backbone of the UK economy, accounting for over 99% of all private sector business. They generate a shared turnover of around £2.75 trillion – more than half of total UK business turnover – and employ some 16.6 million workers.

Market study on SMEs

The campaign comprises three stages:

A market study on SMEs
Guidance to support the proportionate audit of SMEs
Support materials for SMEs

The market study was launched on 3 February and aims to examine issues such as reporting and audit compliance that affect SMEs. It focuses on the challenges faced by SMEs in regards to these issues and aims to understand the decision-making process for small businesses that procure audit services despite being exempt.

The study also engages with capital and audit service providers to learn how auditing standards are interpreted and applied to SMEs. Key areas include:

How the audit market is working for SMEs
Burdens on SMEs that arise from reporting and audit requirements
Market forces driving the engagement of audit services by SMEs
Challenges that auditors face when auditing SMEs
Forthcoming developments which the FRC should be considering as part of the study

Those looking to respond to the study should do so by 25 April using the documents here.

Guidance to support auditing for SMEs

The second phase of the campaign is the provision of guidance for SMEs to support proportionate auditing. In spring 2025, the FRC will publish a draft Practice Notice to support auditors of SMEs, which is designed to help them find ways to proportionately apply auditing standards. While the International Standards on Audit deliver an auditing framework that is intended to be scalable, the scalability provisions aren’t always used consistently or effectively. The final version of the Practice Notice is due by the end of 2025.

Support materials for SMEs

The final phase runs throughout 2025 and comprises the publication of material to support SME owners and managers with their understanding of auditing requirements. The material will also offer tools that SMEs can use when engaging in audit tendering and processes.

Is the campaign enough?

While the Institute of Chartered Accountants in England and Wales (ICAEW) welcomed the initiative, it has argued that auditing SMEs is challenging not because of issues around interpretation but because of the length and complexity of the auditing standards themselves. It has called for the FRC to include in its campaign a discussion of the auditing standard for Less Complex Entities (LCEs), developed by the International Auditing and Assurance Standards Board (ISAAB).