Three initiatives, developed through the FRC’s Innovation and Improvement Hub, were announced on 4 June. Chief among them is a new Audit Tech & AI Sandbox, open for applications from today to firms of all sizes across the UK.

Successful applicants will explore how auditing standards apply in practice to emerging tools, including generative and agentic AI and advanced software.

The FRC stressed that its role is not to endorse particular products but to help create the regulatory conditions for innovation that serves both the market and the public interest. A parallel research project, “Unlocking barriers to audit tech”, will examine the specific obstacles smaller firms face in adopting technology, building on the regulator’s recent SME Audit Market Study.

Chief executive Richard Moriarty said technology and artificial intelligence could profoundly reshape audit markets worldwide, and that he wanted the UK at the leading edge, supported by a regulatory environment that enables innovation while maintaining the high standards that command public confidence. Good regulation, he added, should create the conditions for innovation rather than hold it back.

The FRC is also opening a second round of its Simplifying Annual Reporting Sandbox, addressing a persistent complaint from companies and investors that annual reports have grown too long and complex.

The first round, which worked with four AIM-listed companies and one FTSE-listed company, was described by participants as an efficient process that produced actionable findings.

The new round will again prioritise smaller listed companies, particularly Small Cap issuers, and runs for a four-week application window so that firms with December year-ends can act on feedback before their next reporting cycle.

Separately, the regulator has published findings from its sandbox on materiality for SMEs, which considers how to achieve a proportionate approach to auditing smaller organisations.

The paper notes that standard percentage ranges designed with larger entities in mind can create disproportionate work, and explores solutions including greater use of practitioner judgement and closer collaboration with recognised supervisory bodies on more appropriate audit inspection for SMEs.