EY and London Managing Partner Penalized Over £1.3m Following Made.com Audit Failings

Accountancy giant EY and its London office managing partner, Julie Carlyle, have been handed financial penalties totaling nearly £1.3 million by the Financial Reporting Council (FRC) following an investigation into audit shortcomings surrounding the former online furniture retailer Made.com.

The regulatory sanctions stem from the handling of the 2021 statutory audit for Made.com prior to its high-profile collapse in 2022.

The Regulatory Sanctions

The UK’s financial audit watchdog, the FRC, levied a discounted fine of £1.1 million against Ernst & Young (EY), alongside a discounted penalty of £49,000 against Julie Carlyle, who leads EY’s London office and manages a high-profile portfolio of FTSE-listed retail clients.

Both penalties were reduced from higher baseline amounts after EY and Carlyle promptly admitted to the shortcomings and fully cooperated with the regulatory inquiry.

Key Audit Shortcomings Identified by the FRC

According to the FRC, the audit team breached basic professional standards across multiple areas when evaluating Made.com’s financial position:

• Inadequate Forecast Testing: Auditors failed to properly interrogate, test, or verify the reliability and accuracy of management’s underlying financial forecasting models.
• Insufficient Evidence on Assets: The firm did not gather sufficient audit evidence regarding the company’s deferred tax assets to verify whether they were realistically recoverable.
• Ignoring Subsequent Events: The team failed to evaluate critical new evidence that came to light between the initial preparation of the audit work and the signing of the final report.

Made.com, which listed on the London Stock Exchange in 2021, experienced a severe drop in consumer demand following the COVID-19 pandemic. The retailer entered administration in late 2022, resulting in its delisting and the loss of roughly 400 jobs when its brand was sold off without taking on its debts or staff.

Commenting on the ruling, Penrose Foss, Executive Counsel at the FRC, stated:

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

Response from EY

Addressing the decision, an EY spokesperson stated:

“The delivery of high-quality audits remains our priority,” adding that the firm is “committed to learning from this matter.”

Source: Originally reported by City A.M.