EY and Audit Partner Fined £1.25m Over Made.com Audit Failures
The UK regulator found that the 2021 audit failed to challenge management’s going-concern forecasts adequately or obtain sufficient evidence supporting a deferred tax asset
The UK Financial Reporting Council has imposed combined financial sanctions of £1.246 million on EY and audit engagement partner Julie Carlyle over failures in the 2021 audit of online furniture retailer Made.com.
EY was fined £1.197 million, while Carlyle received a £49,000 penalty. Both were severely reprimanded, and the regulator declared that the audit report did not satisfy the relevant professional requirements.
EY and Carlyle admitted breaches of auditing standards in two areas: Made.com’s assessment of whether it could continue operating as a going concern, and the recoverability of a deferred tax asset recorded in its financial statements.
On going concern, the FRC found that the auditors failed to perform adequate procedures to assess the accuracy and reliability of management’s financial models. The work included insufficient challenge of key assumptions and inadequate evaluation of downside scenarios.
The auditors also failed to obtain sufficient appropriate evidence supporting the recoverability of the deferred tax asset. In both areas, the FRC said they did not properly consider information available before the audit report was signed when assessing the reliability of management’s forecasts.
The regulator stressed that its settlement decision did not question whether Made.com’s 2021 financial statements gave a true and fair view. The sanctions concern the quality and sufficiency of the audit work rather than a finding that the accounts were misstated.
Made.com listed on the London Stock Exchange in June 2021 after a period of strong trading during the Covid-19 pandemic. Its performance deteriorated during 2022 as supply-chain disruption and weaker consumer demand affected the business. Interim financial statements for that year reported a £35.3 million loss before tax, and EY issued a disclaimer of opinion primarily because of material uncertainties concerning going concern.
The company’s board began exploring a sale in September 2022, and Made.com entered administration on 8 November. The enforcement proceedings relate only to EY and Carlyle’s audit of the financial year ending 31 December 2021 and should not be treated as findings against Made.com, its directors or other parties.
EY said there was no suggestion from the FRC that the financial statements had been misstated. The firm said it had learned from the matter and updated its internal guidance as part of its audit-quality improvement work. Carlyle did not respond separately to Reuters’ request for comment.
EY’s original proposed sanction of £1.8 million was reduced by 5% for mitigating factors and by a further 30% for admissions and early settlement. Carlyle’s initial £70,000 penalty was also reduced by 30%. EY and Carlyle were additionally ordered to pay the costs of the FRC investigation.
Related Coverage
Financial Reporting Council: Sanctions against Ernst & Young and Julie Carlyle
The regulator’s official announcement sets out the admitted breaches, financial sanctions and background to Made.com’s collapse.
FRC Final Settlement Decision Notice: Made.com 2021 audit
The primary enforcement document provides the detailed factual and regulatory basis for the sanctions imposed on EY and Carlyle.
Reuters: EY and audit partner sanctioned over Made.com failures
Reports EY’s response and summarises the shortcomings identified in the going-concern and deferred-tax-asset work.
Financial Times: EY fined £1.2m for breaching standards on Made.com audit
Places the sanctions within EY’s wider UK enforcement record and provides additional commercial context concerning the audit.
Trying to keep up with audit quality at Deloitte, PwC, EY and KPMG?
Start here → https://www.big4news.com/t/audit-quality
Want to stay up to date on all things Big Four around the world?
Check out the News section and subscribe to Big4News for weekly deep dives and briefings.