The Financial Reporting Council (FRC) has launched an investigation into EY’s audits of the Post Office, focusing on the period from March 2015 to March 2018—a time when the organisation was embroiled in the Horizon software controversy that has since become the most significant miscarriage of justice in British legal history.
The inquiry will assess whether EY, one of the UK’s Big Four accountancy firms, met the auditing standards applicable during that time.
The FRC confirmed the investigation is “with particular reference to matters related to the Horizon IT system” and will examine the role and responsibilities of EY as statutory auditor of the Post Office.
Post-Inquiry Scrutiny Intensifies
The announcement follows the conclusion of public hearings in the government’s Post Office Horizon IT inquiry, which wrapped up in December 2024.
Although the inquiry was wide-ranging, the FRC noted that it did not examine the role or knowledge of external auditors, prompting the regulator to open its own probe once public proceedings had ended.
Given the scale of the scandal and the public interest surrounding it, the FRC has taken the unusual step of reclaiming supervisory authority from the Institute of Chartered Accountants in England and Wales (ICAEW), which typically oversees statutory audits of this kind.
A spokesperson for EY said: “We take our public interest responsibilities extremely seriously and will be fully cooperating with the FRC during their investigation.”
Historical Context and Audit Trail
The Horizon system, developed by Fujitsu, was introduced in the late 1990s and used to manage transactions across Post Office branches.
Flaws in the system led to financial discrepancies being incorrectly attributed to branch operators.
Between 1999 and 2015, more than 900 sub-postmasters and postmistresses were prosecuted based on this faulty data, resulting in convictions for theft, false accounting, and fraud.
Although EY’s audit remit post-dated the bulk of these prosecutions, internal communications cited in the Horizon inquiry raised questions about whether red flags were missed.
In one 2011 meeting, EY is reported to have warned then-Post Office chair Alice Perkins that the system presented “a real risk,” and asked whether Horizon “captures data accurately.” These concerns do not appear to have been escalated.
The FRC’s investigation will not revisit the wider Horizon inquiry findings but will focus specifically on EY’s conduct during its audit tenure, assessing whether the firm fulfilled its obligations to detect and raise material concerns linked to the accounting data derived from Horizon.
Implications for EY
EY served as the Post Office’s external auditor for over three decades, with its contract concluding in 2019 when PwC assumed the role.
The firm is already under scrutiny for other recent audit failures, including a £4.9 million fine over its work on Thomas Cook and a separate £500,000 fine this month related to Stirling Water Seafield Finance’s 2019 accounts.
This latest investigation adds to mounting pressure on the firm and further fuels ongoing debate about audit quality and accountability across the profession.
The outcome of the FRC’s inquiry could have wide-ranging implications for audit practices in public interest entities, particularly those operating in sensitive or state-linked sectors.
It also raises fresh questions about the efficacy of historical audit oversight frameworks and the adequacy of professional scepticism applied to IT systems embedded in financial reporting.
The FRC has not provided a timeline for the completion of the investigation. Formal findings from the broader Horizon inquiry are also pending.