UK Accounting Watchdog Raises Concerns Over Big Four’s Offshore Audit Model

The Financial Reporting Council (FRC), the UK’s accounting watchdog, has expressed concerns over the growing use of offshore teams in audit work by the Big Four accounting firms. In its annual quality report published on 22 July, the FRC noted that companies are increasingly relying on offshore staff for tasks that require greater judgment.

Source: s.yimg.com

According to the report, this shift marks a departure from the long-standing practice of using overseas teams mainly for routine testing and administrative support. Instead, offshore teams are now taking on more complex work involving professional judgment. The model has been developed over more than a decade by Deloitte, EY, KPMG, and PricewaterhouseCoopers (PwC), particularly through large operations in India.

The use of offshore teams has been driven by companies’ desire to cut costs, access trained staff, and provide support across time zones. Mid-tier operators have also followed suit as the UK market for qualified accountants has become more constrained. KPMG UK’s latest transparency report revealed that around a quarter of staff in its audit practice are based offshore.

Two auditors at Big Four companies told the Financial Times that they had witnessed a rising dependence on offshore teams and had concerns about the quality of some of the work delivered. The FRC warned that companies need to ‘future-proof’ themselves against the risks linked to offshoring. The regulator also vowed to monitor how the largest operators manage their ‘extended team models’ over the next year.

The FRC also highlighted concerns about the ability of UK companies to oversee activities carried out elsewhere in their international networks. Most major accounting practices operate as networks of national partnerships, with local companies separately owned and managed, and a global body providing overall coordination. The regulator noted that PwC’s UK business had identified a ‘small number’ of cases where overseas member companies carried out non-audit work for audit clients without securing the required UK approvals.

PwC is undertaking a detailed internal review to check whether there have been any further breaches. Under UK rules, companies are prohibited from charging non-audit fees to audit clients that exceed 70% of the audit fee. These services can include consultancy and tax advice. The FRC said it would prioritize reviewing PwC’s arrangements for approving non-audit services provided by network companies.

The regulator also emphasized that the gap in audit quality between the largest companies and mid-tier competitors remains wide. ‘For firms outside the largest, including more recent entrants… progress is evident but uneven,’ the watchdog said.

The FRC’s concerns about the Big Four’s offshore audit model have sparked a debate about the risks and benefits of offshoring in the accounting industry. While offshoring can offer cost savings and access to skilled labor, it also raises questions about the quality of work and the ability of companies to oversee activities carried out elsewhere in their international networks.