EY and a partner at the firm have been fined around £1.2 million over failures linked to its audit of online furniture retailer Made.com.
The Financial Reporting Council (FRC) said it has hit the corporate finance firm with a £1.197 million sanction after it breached audit rules.
The accounting watchdog also fined Julie Carlyle, an audit engagement partner at the firm who oversaw the Made audit, around £49,000.
Watchdog officials said the auditors relied too heavily on the retail group’s own forecasts and did not sufficiently challenge them to check Made’s financial resilience.
Hundreds of jobs were lost after Made collapsed into administration in November 2022.
The company suffered a sharp downturn after launching on the London Stock Exchange less than two years earlier with a £775 million price tag.
The brand was then snapped up in a rescue deal by retail group Next, which continues to run the business.
The FRC said the failures related to EY’s audit of Made’s finances for the year to December 2021, prior to its collapse.
It flagged that there was a “failure to perform adequate procedures” to assess the accuracy and reliability of management forecasts related to whether the firm could operate as a going concern.
There was also a failure to obtain sufficient appropriate audit evidence in relation to a deferred tax asset.
The fines for the firm and the audit partner were both reduced by 30% compared with their initial potential fine due to early admission.
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.”
An EY spokesman said: “The delivery of high-quality audits remains our priority.
“While there was no suggestion by the FRC that the full-year financial statements had been misstated, we committed to learning from this matter and, in the years since this audit, have updated our internal guidance as part of our focus on continuous improvement.”
