EY fined £1.2m over Made.com audit failures before retailer’s collapse

EY has been fined almost £1.2 million after Britain’s accounting watchdog found shortcomings in its audit of online furniture retailer Made.com before the company’s collapse, renewing scrutiny of audit quality following a series of high-profile corporate failures.

The Financial Reporting Council (FRC) imposed a £1.197 million penalty on the Big Four accounting firm and fined audit engagement partner Julie Carlyle nearly £49,000 over deficiencies in the audit of Made.com’s 2021 financial statements.

According to the regulator, EY failed to apply sufficient professional scepticism when assessing the retailer’s financial resilience, relying too heavily on management’s own forecasts rather than independently testing whether the business could continue operating as a going concern.

The FRC also found the auditors had not obtained adequate evidence relating to a deferred tax asset, concluding that key audit procedures fell short of required standards.

Made.com entered administration in November 2022 after a sharp deterioration in trading, less than two years after its London stock market debut valued the online retailer at £775 million. Hundreds of jobs were lost before the business was acquired by retail group Next, which continues to operate the brand.

The penalties were reduced by 30 per cent after both EY and Ms Carlyle admitted the breaches at an early stage of the investigation.

Penrose Foss, the FRC’s executive counsel, said the case demonstrated the importance of robust scrutiny when evaluating management assumptions.

“In this case the auditors relied on management’s forecasts without applying sufficient challenge or carrying out adequate testing to obtain sufficient evidence,” he said. “Absent such challenge and evidence, there is a heightened risk that financial statements present an inaccurate picture of a company’s financial position.”

The sanctions add to continuing regulatory pressure on the UK’s audit profession as authorities seek to strengthen confidence in corporate reporting and governance following a succession of prominent business failures.