[Global Financial Insights] FRC Launches Scalebox to Support Smaller Audit Firms

[2025] 178 taxmann.com 615 (Article)

Global Financial Insights is a weekly feature for the Accounts and Audit Module subscribers of Taxmann.com. It provides you with the latest updates on financial reporting and auditing practices from across the globe. Here is this week’s financial update:-

1. FRC launches Scalebox Programme to strengthen smaller audit firms in the UK PIE market

The Financial Reporting Council (FRC) has launched the Scalebox Programme to support smaller UK audit firms seeking to build capability and increase their presence in the Public Interest Entity (PIE) audit market. The initiative offers a more proportionate supervisory approach, recognising the resource and capacity constraints smaller firms face, while keeping audit quality central. Participating firms will work closely with the FRC through bespoke programmes aimed at strengthening their systems of quality management in line with ISQM (UK) 1. In return, and subject to their progress and commitment, firms may benefit from reduced inspection, supervision, and registration requirements during 2025/26 and 2026/27. The programme is seen as part of the FRC’s broader effort to diversify the PIE audit market, reduce reliance on the Big Four, and encourage the growth of challenger firms, while balancing proportional oversight with the need to maintain high audit quality.

Source – Financial Reporting Council

2. FRC launches innovation and improvement hub to propel regulatory innovation and market growth

The Financial Reporting Council (FRC) has launched an Innovation and Improvement Hub to provide a collaborative platform where regulators and market participants can jointly address common challenges while maintaining high regulatory standards. Building on earlier initiatives such as the Audit Sandbox and Scalebox, the Hub expands the options available for regulatory support and moves beyond traditional supervisory models by encouraging open, collaborative dialogue on shared priorities.

The FRC has announced three early focal areas:

(a) exploring how artificial intelligence may shape the future of audit,
(b) working with companies to reduce the growing length of annual reports and accounts, and
(c) strengthening coordination across regulators to ensure a more cohesive oversight environment.

FRC in line with its recent Scalebox commitment, the Hub reinforces the FRC’s effort to support smaller audit firms in improving quality management systems and implementing proportionate oversight in the PIE audit space.

Source – Financial Reporting Council

3. FASB issues accounting standards update to improve accounting for internal-use software

On September 18, 2025, the Financial Accounting Standards Board (FASB) released Accounting Standards Update (ASU) 2025-06, which introduces targeted improvements to how entities account for internal-use software costs. Under the new guidance, references to rigid “project stages” are removed, making the accounting rules more compatible with iterative development methods like agile.

Now, software costs may be capitalized once two conditions are met:

(a) management has committed and approved funding for the software project, and
(b) it is probable that the project will be completed and used as intended, subject to an evaluation of any significant development uncertainty.
The amendments are effective for annual periods beginning after December 15, 2027, and for interim periods within those years. Early adoption is permitted at the start of an annual reporting period.

Source – Financial Accounting Standards Board

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