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The Financial Reporting Council (FRC) in the UK has released detailed guidance for audit firms on the use of generative and agentic artificial intelligence (AI) in audit work. This guidance is noted as the first issued by any audit regulator worldwide and the FRC's second on AI use in audits.
The Financial Reporting Council (FRC) in the UK has issued comprehensive guidance to audit firms regarding the integration of generative and agentic artificial intelligence (AI) into their audit processes. This document is designed to assist firms in effectively managing potential risks to audit quality while simultaneously leveraging the significant benefits that these advanced AI technologies can offer.
The FRC's guidance is a pioneering effort, being the first of its kind from any audit regulator globally, and marks the second occasion the watchdog has addressed AI use in auditing. Developed through extensive dialogue with market participants, its primary aim is to support firms in the swift and safe adoption of AI tools. The FRC emphasizes that this publication is a proactive step to formalize good practices, ensure sustained audit quality, and build trust in AI's application, rather than a reaction to identified audit failings.
At its heart, the guidance provides a structured framework for audit firms to gain confidence in the reliability and quality of outputs generated by AI systems. It underscores that the appropriate extent and type of safeguards and checks will necessitate professional judgment, varying considerably depending on the specific AI tool in question and its intended purpose within the audit. To facilitate practical implementation, the document includes case-style examples, such as using AI to summarize board minutes or to analyze contracts during revenue recognition testing.
The FRC reiterates that its expectations regarding accountability remain constant, asserting that firms and Responsible Individuals bear ultimate responsibility for audit quality. Mark Babington, FRC Regulatory Standards executive director, commented on the rapid adoption of AI, including agentic AI, in auditing. He stated that the guidance is intended to enable firms to invest in these tools with assurance, managing risks effectively and upholding public expectations for high standards, all while maximizing technological benefits. He stressed that despite technological shifts, the fundamental regulatory principle of human accountability for audit quality persists.
This AI guidance follows closely on the heels of other FRC initiatives. The council recently updated its guidance on 'comply or explain' governance reporting, reflecting a broader commitment to modernizing and adapting regulatory frameworks in response to evolving business and technological landscapes.