EY fined £1.2mn over Made.com audit standards breaches in UK

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EY fined over Made.com audit

Highlights

EY is fined £1.2mn and an audit partner £49,000 by the FRC for audit failures related to Made.com's 2021 going concern assessment and deferred tax asset.
The FRC finds EY inadequately challenged Made.com's management forecasts and models, increasing risk of inaccurate financial statements for investors.
Made.com collapses into administration in 2022 after a June 2021 London IPO at £775mn, with its brand acquired by Next for £3.4mn.

Regulator findings on the 2021 audit

As reported by Financial Times, citing the Financial Reporting Council, EY is fined £1.2mn over its audit of collapsed online furniture retailer Made.com, while one audit partner also receives a £49,000 financial penalty and a severe reprimand.

The watchdog says the breaches relate to work on Made.com’s going concern measure, a key indicator for investors assessing whether a business can survive the next accounting period, as well as one deferred tax asset. The FRC says EY does not perform enough checks and does not sufficiently challenge the models used by Made.com in reaching those judgments.

In the regulator’s statement, FRC executive counsel Penrose Foss says the auditors relied on management forecasts without sufficient challenge or adequate testing. He says that without that challenge and evidence, there is a heightened risk that financial statements present an inaccurate picture.

Collapse backdrop and sector implications

Made.com expands rapidly during the Covid-19 pandemic as its design-led furniture gains popularity with younger consumers, but supply chain bottlenecks and weaker demand later trigger multiple profit warnings. The group enters administration in 2022, less than 18 months after listing in London in June 2021 with a £775mn valuation.

Its brand and intellectual property are later acquired by Next for £3.4mn in a prepack administration. In 2022, EY issues a disclaimer of opinion on the group’s interim financial statements, saying it cannot evaluate Made.com’s financial record mainly because of uncertainties linked to going concern.

The FRC also says EY will pay the costs of the investigation. EY says it has updated internal guidance on the issues identified and adds that high-quality audits remain its priority, while noting the FRC does not suggest that the FY21 financial statements are misstated.

UK consumer confidence and broader activity indicators have recently strengthened, supporting the view that household spending could remain relatively resilient despite lingering global risks. In our earlier coverage, we noted that shifts in sentiment and demand expectations are closely watched by consumer-facing companies and can influence decisions across sectors that rely on discretionary spending.

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