UK’s accountancy regulator has issued groundbreaking guidance stating auditors cannot shift blame for failures to AI tools. Mark Babington, executive director at the Financial Reporting Council (FRC), emphasized that audit partners remain fully accountable for AI-driven decisions. “You can’t blame it on the box,” he told the *Financial Times*, stressing human oversight is non-negotiable. The rules address risks like hallucinations in AI outputs and misuse of flawed data, which could distort audit conclusions.

Big Four audit firms—KPMG, PwC, EY, and Deloitte—have invested billions in AI to streamline workflows, with KPMG recently leveraging its platform to win a major US audit tender. However, the FRC warns that overreliance on AI without robust safeguards threatens audit quality. While firms like KPMG and PwC plan job cuts amid AI efficiency gains, Babington dismissed fears of mass displacement, calling skepticism overblown. He highlighted audits’ enduring need for “professionally sceptical judgement.”

The regulator itself is adopting AI to process vast corporate reporting datasets, though budget constraints limit hiring. Babington noted the FRC’s two-year budget saw a below-inflation raise, pushing AI adoption as a cost-saving measure. Concerns persist about uneven audit quality, as the Big Four dominate 90% of FTSE 350 audit fees, leaving smaller firms at a disadvantage. Yet he hinted at potential solutions, citing private equity investments in smaller practices as a pathway to balance capabilities.

The FRC’s guidance underscores a pivotal shift: AI is a tool, not a replacement, for auditors. As firms navigate this technological evolution, the regulator’s emphasis on accountability and human judgment sets a global precedent for ethical AI integration in finance.