Thomas Cook given ‘clean bill of health’ by accountants before travel firm’s collapse which left 150,000 stranded
THOMAS Cook's auditors EY are to be investigated as to why they signed off the last set of accounts for the travel firm prior to its collapse.
The failure of the travel giant last week left 150,000 British holidaymakers stranded, while thousands of workers have gone unpaid.
The Financial Reporting Council (FRC) said it would look at whether EY acted properly when last scrutinising the numbers in 2018.
At that time, Thomas Cook was already labouring under a mountain of debt as competition intensified from other operators.
EY replaced PwC as auditors in 2017 and told Thomas Cook accountants that they should stop booking regular costs on the balance sheet as "one-off" items.
If the FRC's investigation finds any wrongdoing, it could lead to a severe reprimand and a hefty fine for those involved.
The travel firm’s dramatic collapse last week is already the focus of several high profile inquiries.
Parliament's influential Business, Energy and Industrial Strategy (BEIS) select committee is also looking at the failure which triggered the biggest repatriation since the Second World War.
The MPs on the committee have demanded the appearance of executives and auditors for a hearing.
They are particularly keen to look at the bonuses awarded to bosses - as well as EY's role in auditing the stricken firm.
Business Secretary Andrea Leadsom has also set up a Thomas Cook taskforce to ensure lessons are learned from the fiasco.
Separately, Ryanair bosses have said the air travel regulator was partly at fault for the chaos surrounding the collapse of Thomas Cook, calling for it to introduce tougher financial stress tests to protect customers.
Bosses at the budget airline said the Civil Aviation Authority (CAA) should have stepped in sooner, claiming the industry was aware of Thomas Cook's financial predicament "for months".
Kenny Jacobs, chief marketing officer of the company, called on the regulator to introduce "more regular and robust" stress tests on airlines and tour operators to limit the impact on the taxpayer in another similar scenario.
City comment: Audit of auditors urgently needed
THE audit sector has faced a barrage of criticism in recent years, with the Government vowing to overhaul the industry following a string of corporate failures.
One of the problems is that the Big Four accounting giants - PwC, EY, Deloitte and KPMG - offer numerous financial services to businesses, in addition to auditing.
This runs the risk of creating conflicts of interest and question marks over independence. However, the Big Four are keen to promote other services and advice, which tend to generate higher revenues.
With first the failure of Carillion and now Thomas Cook, reform is not before time.
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