EY and one of its audit partners have been fined a combined £1.25m following failings in their audit of collapsed online furniture retailer Made.com.
The Financial Reporting Council imposed a £1.197m financial sanction on EY and fined audit engagement partner Julie Carlyle £49,000 over their work on Made.com’s accounts for the year ending 31 December 2021.
Both EY and Carlyle admitted breaching international auditing standards in two areas: Made.com’s status as a going concern and the recoverability of a deferred tax asset.
The regulator found the auditors had failed to perform sufficient procedures to assess the accuracy and reliability of financial models prepared by Made.com’s management.
This included failing to adequately challenge key assumptions or properly assess downside scenarios that could affect the furniture retailer’s ability to continue trading.
EY and Carlyle also failed to obtain sufficient audit evidence to support the recoverability of Made.com’s deferred tax asset.
The FRC said information available up to the date of the auditor’s report had not been properly considered when the reliability of management’s forecasts was assessed.
However, the regulator stressed that its decision did not question whether Made.com’s 2021 financial statements presented a true and fair view of the business.
Alongside the financial penalties, EY and Carlyle received severe reprimands. The FRC also declared that the audit report signed on behalf of EY did not meet the relevant regulatory requirements.
The original fines were reduced after the auditor and its partner admitted the failings, cooperated with the investigation and agreed to an early settlement. They were also ordered to cover the costs of the investigation.
FRC executive counsel Penrose Foss said the auditors had relied on management forecasts without applying sufficient scrutiny or carrying out adequate testing.
Made.com floated on the London Stock Exchange in June 2021 following a boom in online furniture and homeware sales during the pandemic.
However, it was subsequently hit by supply-chain disruption and a slowdown in consumer demand.
Its 2022 interim accounts reported a £35.3m pre-tax loss, while EY issued a disclaimer of opinion because of material uncertainties surrounding its ability to continue as a going concern.
Made.com began exploring a sale in September 2022 before falling into administration on 8 November that year.
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