EY has been fined £1.2 million and formally reprimanded by the Financial Reporting Council (FRC) for significant audit failures linked to the collapse of Made.com, the online furniture retailer that went into administration in 2022. The regulator also imposed a £49,000 fine on Julie Carlyle, the audit engagement partner responsible for the firm's work on the account.

The FRC found EY and Carlyle breached audit standards in two critical areas related to Made.com’s financial statements for 2021. First, they failed to adequately assess the accuracy and reliability of management’s financial models used to justify the company’s “going concern” status. The audit did not sufficiently challenge key assumptions or thoroughly evaluate downside scenarios, resulting in an inadequate evaluation of whether Made.com could continue operating.

Second, the regulator identified shortcomings in EY’s audit of the recoverability of a deferred tax asset—an accounting benefit allowing the company to offset past losses against future taxable profits. The audit team did not obtain sufficient appropriate evidence to support the asset’s valuation and failed to consider all relevant information up to the audit report date when reviewing management’s projections.

Made.com, which was listed on the London Stock Exchange in June 2021, faced increasing financial pressure as rising costs and weakened consumer demand damaged its business model. The company’s shares were suspended in October 2022, and it entered administration the following month, leaving unsecured creditors owed £186.6 million.

Penrose Foss, executive counsel at the FRC, criticized EY for relying too heavily on management’s forecasts without applying enough professional skepticism or performing adequate testing. “Auditors relied on management’s forecasts without applying sufficient challenge or carrying out adequate testing to obtain sufficient evidence,” Foss said.

EY’s original penalty of £1.8 million was reduced to £1.2 million due to mitigating factors including the firm’s early admission of the breaches and settlement arrangements. Carlyle’s fine was similarly lowered from £70,000 to £49,000. Both EY and Carlyle accepted a severe reprimand, acknowledging that their audit work failed to comply with required standards. Carlyle remains employed by EY and has not provided a public comment on the matter.