Thomas Cook’s auditor under investigation by authorities

Thomas Cook’s auditors are to be investigated over their role in signing off the last set of accounts for the travel firm prior to its collapse, the accounting regulator has announced.

Financial Reporting Council (FRC) said it would look at whether EY acted properly in scrutinising the numbers in 2018 and could censure the individual accountants or the financial services giant itself.

The decision came as the Insolvency Service, which is overseeing the liquidation process, revealed that some ex-Thomas Cook staff who have applied for unpaid wages have been wrongly told they will not be entitled to holiday pay.

A new statement on the department’s website for those affected by the collapse said: “Some employees have received a letter telling them that they will not be paid holiday pay.

“This may be because the information we have so far received from Thomas Cook doesn’t say that you are owed holiday pay. Claims rejected for this reason are being individually reviewed, without the need for re-submission and will be paid as soon as we can verify what is owed.”

The FRC inquiry comes less than a week after Parliament’s Business, Energy and Industrial Strategy (BEIS) select committee, which is looking at the collapse, demanded the appearance of executives and auditors for a hearing.

MPs on the committee are particularly keen to look at the bonuses awarded to bosses and EY’s role in auditing.

EY replaced PwC as auditors in 2017 and told Thomas Cook accountants that they should stop claiming regular costs on the balance sheet as “one-off” items.

A common practices for businesses is to strip out “one-off” costs from certain profit measures, but critics argue this could be seen as a route to flattering the numbers.

If the FRC’s investigation finds any wrongdoing, it could lead to a severe reprimand and a fine for those involved.

The audit sector has faced a barrage of criticism in recent years, with the Government vowing to tighten up the industry.

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 independence questions, but the Big Four are keen to promote other services and advice, which tend to generate higher revenues.

Business Secretary Andrea Leadsom has also set up a Thomas Cook taskforce to ensure lessons are learned and to deal with the company’s liquidation, which is being run by the Government’s official receiver.

She said: “It is vital that, when a company like Thomas Cook fails, the circumstances around its collapse are considered in full, including the conduct of its directors and auditors.

“I have already asked the Insolvency Service to prioritise their review of directors and I welcome the FRC’s decision today to launch an investigation into the audit of Thomas Cook’s 2018 accounts.”

Questions remain over how much the taxpayer will pick up in unpaid wages and redundancy payments to the 9,500 UK-based Thomas Cook staff.

Around 6,000 have been made redundant so far, with the remaining staff continuing to work for the business and help officials in the insolvency process.

It was also reported that Mrs Leadsom failed to meet with any senior directors from Thomas Cook prior to its collapse when the company was seeking reassurances from ministers.

The business was directed to the Department for Transport instead.

On Monday, it was also revealed that some customers may have to wait up to two months to receive a refund on cancelled holidays.

Previous investigations by the FRC have included a £6.5 million fine for PwC over its audit of BHS prior to its collapse, and a £4 million fine for KPMG over its auditing of Co-op Bank’s purchase of Britannia Building Society.

A spokesman for EY said: “We can confirm that EY has been notified of the FRC’s intention to conduct an investigation into the audit of Thomas Cook Group plc for the year ended 30 September 2018.

“We will be fully co-operating with FRC during their inquiries. It would be inappropriate to comment further at this time.”