AI Will Not Replace Auditors' Core Judgment, Says Financial Reporting Council Chief
In a comprehensive interview with City AM, Richard Moriarty, chief executive of the Financial Reporting Council (FRC), has declared that artificial intelligence will not replace the essential human judgment that defines the auditing profession. Speaking about the technological transformation sweeping through accountancy, Moriarty emphasized that while AI automates routine tasks, the profession's "value-add" lies in areas beyond automation.
The Enduring Value of Professional Skepticism
Moriarty identified the "stock in trade of an auditor" as professional skepticism, challenging management, and making fine judgments—capabilities he believes possess enduring value that AI cannot replicate. "I'm personally optimistic about it," he stated, "but obviously the firms and the professional bodies need to step into that space, not just for the clients... but to develop a compelling vision for the next generation coming through."
He acknowledged that every technological shift causes the sector to lose low-level tasks to automation, requiring professionals to "reinvent or reimagine" the parts of their work that deliver genuine value. Despite significant AI investment by professional services firms, Moriarty stressed that humans must remain accountable for critical judgments, noting that the FRC's role is to regulate accountable people, not algorithms.
Audit Quality Improvements and Reform Setbacks
The interview revealed that audit quality has "tracked consistently upwards" since what Moriarty described as the "dark period" of 2018, when high-profile corporate failures including Carillion, Patisserie Valerie, and BHS plunged the audit sector into scandal. The FRC has transformed from a "gentle" supervisor to a proactive prosecutor, issuing multimillion-pound fines against firms and individuals for audit shortcomings.
However, Moriarty expressed disappointment that the Audit Reform and Corporate Governance (ARGA) Bill—which would have replaced the FRC with a body possessing enhanced statutory powers—was scrapped in January to avoid significant new costs to firms. Originally included in Labour's first King's Speech, the legislation aimed to improve audit quality following the sector's difficult period.
"Although disappointed that we didn't get the Bill, albeit not surprised, it will not deflect the contribution that the organization's got to make to supporting growth," Moriarty commented. He added that while audit quality has improved significantly in recent years, "no one should be complacent."
Private Equity Interest and Regulatory Pragmatism
Alongside AI advancements and audit reform discussions, the professional services sector is experiencing increased private equity activity. Notable deals include Apax's £700 million acquisition of Evelyn Partners' accounting arm and Cinven's investment in Grant Thornton UK.
Moriarty stated that the FRC is "agnostic on the source of capital but not disinterested," revealing that he has invited private equity firms to engage with the regulator before acquiring audit firms to ensure they meet independence and ethics standards. The FRC has already turned away some investors who failed to appreciate the constraints of owning an audit firm.
"If private capital can bring additive capital and know-how and meet the safeguards and the outcomes that we want around audit quality, ethics, then actually this could bring a bit of dynamism and innovation into the market," he explained. Moriarty emphasized his commitment to positioning the FRC as a pragmatic regulator focused on outcomes rather than ideology, noting that "private equity won't be for all firms."
The regulator's approach reflects a balanced perspective on technological change, regulatory evolution, and market dynamics—all while maintaining that the human elements of judgment and skepticism remain at the heart of effective auditing.
