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FinanceFRC fines EY and London managing partner nearly £1.3m over Made.com audit failures
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The Financial Reporting Council (FRC) has fined Big Four firm EY and its London managing partner, Julie Carlyle, a combined total of nearly £1.3 million for audit failings related to the now-collapsed retailer Made.com. The FRC imposed a £1.1 million fine on EY and a £49,000 fine on Carlyle, both reduced due to their early admission of failings and cooperation. The investigation found that the auditors failed to adequately assess the accuracy and reliability of Made.com's management financial forecasting models, did not gather sufficient evidence regarding the company's deferred tax assets, and ignored relevant new evidence that emerged between the audit work and the signing of the final report. Made.com, once listed on the London Stock Exchange, entered administration in 2022 after a drop in consumer demand post-Covid. The FRC's executive counsel emphasized that relying on management forecasts without proper challenge increases the risk of inaccurate financial statements.
Source report
Big Four firm EY and its London office managing partner have been fined nearly £1.3 million by the Financial Reporting Council (FRC) for audit failings related to retailer Made.com in 2021.
The FRC announced the sanctions following an investigation into Julie Carlyle, who manages the City office and a portfolio of many FTSE-listed retail clients, as well as the firm itself, over the handling of the statutory audit of the now-collapsed retailer.
Penalties Imposed
- EY: Fined £1.1 million
- Julie Carlyle: Fined £49,000
Both sanctions were discounted after EY and Carlyle admitted the failings shortly after they occurred and cooperated with the investigation.
Nature of the Audit Failings
The failings specifically relate to:
- Inadequate assessment: Both Carlyle and EY did not adequately perform the procedures required to assess the accuracy and reliability of the retailer's management financial forecasting models.
- Insufficient evidence: The auditors failed to gather enough evidence relating to the company's deferred tax assets to confirm they were actually recoverable.
- Overlooked evidence: 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.
Background on Made.com
The furniture retailer was listed on the London Stock Exchange until its share value plummeted after it entered administration in 2022, following a drop in consumer demand after the Covid-19 pandemic. It was subsequently removed from the market.
In December 2022, Next purchased the company's intellectual property for £3.4 million to sell in its own stores.
FRC Statement
Penrose Foss, executive counsel at the FRC, 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."
EY was contacted for comment.
Source
City AMWestern
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EY and London Managing Partner Fined Over £1.3m for Audit Failures at Made.com