By Iain Withers
LONDON (Reuters) - A third of company audits by Britain's leading accounting firms failed a quality test, the country's accounting watchdog said on Tuesday, piling further pressure on a sector already being questioned over its competence.
The Financial Reporting Council (FRC) said 29 of 88 audits inspected needed improvements, with 7 of these requiring significant improvements.
The review covered the "Big Four" auditors - Deloitte, EY, KPMG and PwC - as well as smaller firms Grant Thornton, Mazars and BDO.
The FRC had set the firms a raised target of 100% of the audits inspected requiring no more than limited improvements, up from 90% previously, and none passed.
Of the Big Four, KPMG chalked up the most audit quality failures with 7 out of 18. Nearly half of Grant Thornton's audits fell short of the required standard, at 4 out of 9 inspected, the watchdog found.
In their responses to the FRC, both KPMG and Grant Thornton said they were disappointed with the results and were taking action to improve their standards.
Auditors in Britain have come under increased scrutiny in recent years after high-profile corporate failures at builder Carillion, retailer BHS and an accounting scandal at cafe chain Patisserie Valerie.
The FRC fined Grant Thornton 3 million pounds ($3.8 million) this month for ethics failures on its audit of drinks retailer Conviviality.
It also recommended a record fine of 15 million pounds for Deloitte for "serious and serial failings" in its audit of technology company Autonomy.
"We are concerned that firms are still not consistently achieving the necessary level of audit quality. While firms have made some improvements, and we have observed instances of good practice, it is clear that further progress is required," said David Rule, the FRC's executive director of supervision.
"The tone from the top at the firms needs to support a culture of challenge and to back auditors making tough decisions."
($1 = 0.7983 pounds)
(Reporting by Iain Withers; Editing by Rachel Armstrong and Pravin Char)