FRC launches campaign to support UK SMEs to grow and scale
January 29, 2025
The Financial Reporting Council (FRC) has launched a year-long campaign to help small and medium-sized enterprises (SMEs) access audit services and reduce reporting burdens where possible. The initiative in turn aims to improve their access to capital and to support their growth ambitions.
SMEs are the backbone of the UK economy representing more than 99% of all private sector businesses with a shared turnover of around £2.75 trillion (52% of total UK business turnover) and employing around 16.6 million workers.
Access to audit is often important in supporting SMEs to secure the capital they need to scale, creating wealth and jobs. However, the FRC is aware of some challenges faced by SMEs to secure audit services at a proportionate cost, which may affect their ability to grow, and in how auditing standards are interpreted and applied.
While the FRC’s focus has traditionally been on the largest businesses, we believe there is more we can do to help SMEs too. As set out in the FRC’s draft 3-year strategy published in December 2024, the campaign will examine how SMEs undertake financial reporting, use and access audit to access capital, and how the FRC can help audit firms apply audit standards proportionately to these smaller, lower risk and less complex companies.
This campaign will feature extensive and open engagement with our stakeholders including SMEs and their representatives, their capital providers, auditors who provide services to SMEs, and their professional bodies.
Further demonstrating this commitment, the FRC launched a consultation in December 2024 on proposed amendments to the Financial Reporting Standard (FRS) 101, aimed at enabling more cost-effective financial reporting group components that require less disclosure . This consultation closes 7 March 2025.
Richard Moriarty, Chief Executive, said:
“SMEs are an important bedrock for the UK economy as drivers of innovation and job creation with their ability to access capital often dependent on having audited accounts. I’m keen that the FRC does what it can to support their growth and their ability to scale up.
This campaign across 2025 is focused on analysing how the audit market is working for SMEs, including the reporting and audit requirements they face, and ensuring they are audited proportionately including considering any steps the FRC can take to support this vital part of the UK economy. We look forward to engaging and listening from SMEs and those who represent them, their capital providers, and others with an interest in this important work.”
Activity across the year
As part of this campaign, the FRC is announcing three strands of activity:
Market study on SMEs:
On Monday 3 February, the FRC will launch a market study which will examine the issues affecting SMEs, including the audit and reporting requirements they must comply with.
Market studies are a useful regulatory tool for exploring issues in a market, and can lead to a range of outcomes including richer insights about issues and proposals to improve how the market functions for SMEs.
This exploratory market study will focus on the challenges faced by SMEs in relation to audit and reporting, where practitioners have difficulties in auditing SMEs, and understanding the decision-making process for SMEs who procure audit services when otherwise exempt.
The FRC will be engaging with SMEs, their capital providers, audit practitioners who provide audit services to SMEs and the professional bodies who represent them.
The FRC plans to publish early findings in the spring, and its final report later this year.
Guidance to support the proportionate audit of SMEs:
In spring 2025 the FRC will publish for consultation a Practice Note to support auditors of SMEs.
International Standards on Audit (ISAs) are a framework of standards which ensure that financial statements are audited consistently and transparently. While they are designed to be scalable so that they can be applied proportionately to the size of the company audited, these scalability provisions aren’t consistently used and aren’t always used well.
Practice Notes are a form of guidance which help auditors identify opportunities to proportionately apply auditing standards.
The FRC plans to publish its final Practice Note before the end of 2025.
Support materials for SMEs:
Across 2025, the FRC will publish material to support owners and managers of SMEs to be able to better understand auditing requirements, and how they are applied to their particular businesses and provide some helpful tools for SMEs to engage in the audit tendering and process itself more confidently and knowledgeably.
[Financial Reporting Council, UK]
