Big Four firm EY and its London office managing partner have been fined nearly £1.3m by the Financial Reporting Council (FRC) over audit failings linked to retailer Made.com in 2021.

The watchdog said the sanction follows an investigation into Julie Carlyle, who manages the City office and oversees a portfolio of many FTSE-listed retail clients, and the firm’s handling of the statutory audit of now-collapsed Made.com.

The FRC imposed a £1.1m fine on EY and a £49,000 fine on Carlyle. Both penalties were discounted because the firm and Carlyle admitted the failings to the watchdog soon after they occurred and cooperated with the investigation.

The failings related to EY and Carlyle not adequately carrying out the procedures required to assess the accuracy and reliability of management’s financial forecasting models at Made.com.

The auditors also failed to gather sufficient evidence on the company’s deferred tax assets to confirm that they were recoverable.

In addition, they did not take into account relevant new evidence that emerged between the time the audits were prepared and the date the final audit report was signed.

The case adds to scrutiny of how auditors test forecasts and other assumptions at companies where valuation and tax positions depend heavily on management judgement. For listed retailers and other consumer-facing businesses, those checks can matter when demand shifts quickly, because auditors are expected to challenge management evidence before signing off accounts.

Made.com was listed on the London Stock Exchange until its share value collapsed after the company went into administration in 2022, following a fall in consumer demand after the Covid pandemic. It was later removed from the market.

Made.com rescued by Next

FTSE 100 retailer Next bought Made.com’s brand name, website and intellectual property in November 2022 for £3.4m, with the intention of selling the products through its own stores.

The deal did not include Made.com’s existing staff or any of its financial debt. The collapse and sale led to about 400 redundancies.

"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," Penrose Foss, executive counsel at the FRC, said.

A spokesperson for EY said in response to the FRC notice: "The delivery of high-quality audits remains our priority", and the firm is "committed to learning from this matter."