EY and London managing partner fined over £1.3m for audit failure
Big Four giant EY and its London office managing partner have been hit with a nearly £1.3m fine by the financial watchdog for audit failings related to retailer Made.com in 2021.
The Financial Reporting Council (FRC) said the sanction follows an investigation into Julie Carlyle, who manages the City office and a portfolio of many FTSE-listed retail clients, and the Big Four firm, over the handling of the statutory audit of now-collapsed retailer Made.com.
The FRC has imposed a fine of £1.1m against the firm, and £49,000 against Carlyle. Both sanctions were discounted, as EY and Carlyle admitted the failings to the watchdog soon after they occurred and cooperated with the investigation.
The audit failings specifically concern both Carlyle and EY not adequately performing the procedures required to assess the accuracy and reliability of the retailer‘s management’s financial forecasting models.
The Big Four auditors also failed to gather enough evidence relating to the company’s deferred tax assets in order to confirm these were actually recoverable.
Alongside this, the auditors did not consider relevant new evidence that became available between the time the audits were created and the date they signed the final audit report.
This follows the furniture giant, which was listed on the London Stock Exchange until its share value plummeted after it plunged into administration in 2022, following a drop in consumer demand after the Covid pandemic, and was subsequently removed from the market.
Made.com rescued by Next
FTSE-100 retail giant Next purchased the company’s brand name, website, and intellectual property in November 2022 for £3.4m to sell in their own stores.
However, the deal did not include saving Made.com’s existing staff or taking on its financial debt. The collapse and sale resulted in approximately 400 redundancies.
“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,” Penrose Foss, executive counsel at the FRC, said.
In response to the FRC’s notice, EY said “the delivery of high-quality audits remains our priority” and it is “committed to learning from this matter.”