EY has been fined £1.2m and been issued with a severe reprimand over its audit of Made.com for the FY21.
Audit engagement partner Julie Carlyle received a sanction of £49,000 and a severe reprimand too.
The respondents were also ordered to pay the cost of the investigation.
EY and Carlyle have admitted breaches of the International Standards on Auditing in two areas of the audit:
- Going concern – failure to perform adequate procedures to assess the accuracy and reliability of management’s models, including insufficient challenge of key assumptions and inadequate evaluation of downside scenarios.
- Deferred tax asset (DTA) – failure to obtain sufficient appropriate audit evidence regarding the recoverability of the deferred tax asset.
In both areas, there was a failure appropriately to consider information available up to the date of the auditor’s report in assessing the reliability of management’s forecasts.
Made.com was an online retailer of home furniture and homeware which listed on the main market of the London Stock Exchange in June 2021.
Following a period of strong performance during the COVID-19 pandemic, the Group was adversely affected by supply chain disruption and a downturn in consumer demand during 2022. This decline in performance was reflected in trading updates issued in May and July 2022, and in the FY22 interim financial statements which reported a loss before tax of £35.3 million. EY issued a disclaimer of opinion on the FY22 interim financial statements, primarily due to material uncertainties relating to going concern.
In September 2022, the Board announced that it had engaged financial advisers to explore a sale of the business. The Company entered administration on 8 November 2022.
Penrose Foss, Executive Counsel said: “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.”
