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FinanceUK FRC fines EY nearly £1.2 mln and audit partner for Made.com 2021 audit failures
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The UK's Financial Reporting Council (FRC) has fined EY nearly £1.2 million and audit partner Julie Carlyle £49,000 for failures in the 2021 audit of e-commerce company Made.com Group. Both admitted to breaching international auditing standards in two areas: going concern assessment and deferred tax asset (DTA) evaluation. The FRC issued a severe reprimand and ordered them to pay investigation costs. Made.com, which joined the London Stock Exchange in June 2021, faced supply chain disruption and weaker demand in 2022, reporting a £35.3m loss before tax. EY later disclaimed its opinion on the 2022 interim statements due to material uncertainty about the company's ability to continue as a going concern. Made.com entered administration in November 2022. FRC executive director Penrose Foss criticized the auditors for relying on management forecasts without sufficient challenge or testing.
Source report
Source: International Accounting Bulletin Author: Ellichipuram Umesh
The UK's Financial Reporting Council (FRC) has imposed penalties on EY and audit engagement partner Julie Carlyle for deficiencies in their audit of e-commerce company Made.com Group.
The enforcement action relates to the statutory audit of Made.com's financial statements for the year ended 31 December 2021.
Key Findings
According to the FRC, EY and Carlyle admitted to breaches of international standards on auditing in two specific areas:
- Going concern
- Deferred tax asset (DTA)
Penalties Imposed
- EY: Fined nearly £1.2 million
- Julie Carlyle: Issued a separate financial penalty of £49,000
Both the firm and the partner have also received a published statement in the form of a "severe reprimand." Additionally, the respondents have been ordered to pay the costs incurred by the FRC's executive counsel during the investigation.
Background on Made.com
Made.com, an online home furniture and homeware retailer, joined the main market of the London Stock Exchange in June 2021. After strong trading during the Covid-19 period, the group came under pressure in 2022 amid supply chain disruption and weaker consumer demand.
This deterioration was highlighted in:
- Trading updates released in May and July 2022
- The interim results for 2022, which reported a loss before tax of £35.3 million
EY subsequently issued a disclaimer of opinion on the fiscal year 2022 interim financial statements, primarily due to material uncertainty surrounding the company's ability to continue as a going concern.
In September 2022, Made.com's board announced it had appointed financial advisers to consider a possible sale of the business. The company entered administration on 8 November 2022.
FRC Statement
Penrose Foss, FRC Investigations and Enforcement executive director and 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."
Related Action
The FRC recently penalised Forvis Mazars and audit engagement partner David Allen over audit failings linked to Studio Retail Group.
This article was originally created and published by International Accounting Bulletin, a GlobalData owned brand.
Source
Yahoo FinanceWestern
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FRC fines EY and audit partner for Made.com 2021 audit failures