(qlmbusinessnews.com via uk.reuters.com — Tue, 22nd Oct, 2019) London, UK —
LONDON (Reuters) – Accounting firms have not shown a “learning curve” from the collapse of travel company Thomas Cook and builder Carillion, with urgent reform the only way to improve audit quality, a senior British lawmaker said on Tuesday.
Rachel Reeves, a Labour lawmaker who is chair of parliament’s business committee, said the failure of Thomas Cook showed again that accountants were not proactive in “doing the right thing”.
Reeves was holding a hearing with representatives of EY – formerly known as Ernst & Young – and PwC, who audited Thomas Cook in the years before it collapsed in September, triggering the repatriation of 150,000 British holidaymakers – the biggest in peace time for Britain.
Addressing the Big Four auditors, which also include Deloitte and KPMG, Reeves hit out at the slow pace of change.
“How many more cases of egregious accounting do we need before your industry opens its eyes and recognizes that you are complicit in this and that you need to reform?” she said.
“We can’t rely on you to do the right thing and that legislation is needed to have tougher regulation because… your industry is not willing to make the changes needed.”
EY, which replaced PwC as auditor of Thomas Cook in 2016, is being investigated by its regulator, the Financial Reporting Council.
EY and PwC representatives told the hearing they stood by their audits of Thomas Cook, complying in full with rules at the time, though with full hindsight some things could have been done differently.
Conservative lawmaker Antoinette Sandbach expressed incredulity at how the auditors “blithely” agreed that Thomas Cook was a “going concern”, with no recent writedown in goodwill until May this year despite profit warnings and the need for cash injections.
PwC’s UK head of audit Hermione Hudson said there were considerable “challenging discussions” over the going concern issue, prompting Thomas Cook to delay its annual report.
Richard Wilson, an audit partner at EY, said EY had publicly noted “material uncertainty” on the company being a going concern. The auditor is still owed 900,000 pounds from Thomas Cook for work completed.
After the Carillion and BHS collapse, two government-backed reviews have proposed setting up a new regulator, forcing companies to hire two auditors, and requiring the Big Four to run their audit and advisory services separately to avoid treading softly on audit to win lucrative advisory business.
But Britain’s business minister Andrea Leadsom said last week the government would wait until early 2020 to propose legislation after a third review into the role of audit reports back before the end of 2019.
PwC and EY officials said reform should be implemented as a package drawing on all three reviews. If legislation is proposed in early 2020, change may still take a year or two, with even the regulator sceptical of planned reforms like joint audits.