Thomas Cook auditors under investigation by accounting watchdog

(qlmbusinessnews.com via theguardian.com – – Tue, 1st Oct 2019) London, Uk – –

FRC announces review of EY’s auditing in wake of travel firm’s collapse

Britain’s accounting watchdog has begun an investigation into EY’s audit of Thomas Cook’s accounts, just over a week after the world’s oldest travel firm collapsed.

The Financial Reporting Council said its enforcement division was investigating EY’s audit of the financial statements of Thomas Cook for the year to 30 September 2018.

“The FRC will keep under close review both the scope of this investigation and the question of whether to open any other investigation in relation to Thomas Cook, liaising with other relevant regulators to the fullest extent permissible,” it said.

EY took over from PwC as Thomas Cook’s auditors in 2017. Both are among the UK’s big four accountancy firms.

Thomas Cook plunged to a £1.5bn first-half loss in May and issued its third profit warning in less than a year. It had amassed £1.2bn of debt and was forced to write down the value of its MyTravel UK package holiday business by £1.1bn. In that set of accounts, EY warned there was “significant doubt” whether Thomas Cook could continue as a going concern.

On Monday, the FRC said it had issued a revised going concern standard following a spate of corporate failures in which auditors failed to flag up concerns about the company’s viability.

The collapsed tour operator had three different finance chiefs in two years as its financial problems deepened, and has faced questions about its accounting methods.

Sten Daugaard became Thomas Cook’s chief financial officer in December 2018 after Bill Scott quit after less than a year in the job following a profit warning. Scott had replaced Michael Healy in January 2018 when Healy stepped down after five years in the job.Q&A

Why did Thomas Cook collapse?

Daugaard changed the way Thomas Cook reported its accounts to include items that had been treated as exceptional costs for several years, including when paying directors and meeting banking covenants. He told analysts in November that when he looked at the books “one thing that I could immediately observe was the size of the exceptionals”.

The FRC aims to complete investigations within two years. If it finds evidence of wrongdoing, it would take EY to a tribunal, assuming there is no settlement. The tribunal would decide on the guilt of the firm and any individuals, and impose penalties if appropriate. They can include fines, as well as non-financial penalties such as a greater oversight of the firm and banning individuals from working.

By Julia Kollewe