A financial watchdog has fined Thomas Cook’s auditors a total of £4.98 million concerning the audits of the company’s accounts for the years before its collapse.
Professional services company EY and its audit engagement partner Richard Wilson admitted serious breaches of standards relating to the audits for both 2017 and 2018.
EY was fined £6.5m, reduced to £4,875,000 for admitting to the breaches and early disposal.
Mr Wilson was fined £140,000, also reduced by 25% to £105,000 for admission and early disposal.
The Financial Reporting Council (FRC) said they’d failed to adequately challenge Thomas Cook’s claims about its financial position, so they didn’t know if there was any uncertainty that might cast significant doubts on its ability to continue as a going concern.
“This was a key responsibility that EY and Mr Wilson did not fulfil adequately under the relevant auditing standards and was an important matter to users of the financial statements,” said the FRC.
Both also failed to exercise ‘sufficient professional scepticism’ when assessing Thomas Cook’s £2.6 billion goodwill balance, which comprised 40% of its assets, said the FRC.
“The failings for the audit of Goodwill in 2018 were particularly serious given Thomas Cook’s deteriorating trading performance, which heightened the risk that the goodwill balance could be impaired,” it added.
Thomas Cook collapsed in September 2019 with more than £1 billion of debt.
While the FRC said there was no suggestion that the breaches by EY and Mr Wilson were intentional, dishonest, deliberate or reckless, they both received a severe reprimand and EY was ordered to carry out a review of its procedures and take action to prevent a recurrence.
FRC Deputy Executive Counsel Claudia Mortimore said: “Thomas Cook’s Goodwill Balance and Going Concern status were fundamental to its financial position and performance.
“EY and Mr Wilson were subject to a public interest duty to comply with auditing standards and robustly challenge the forecasts and assumptions that underpinned Thomas Cook’s valuation of goodwill.
“Similarly, in relation to going concern they should have exercised sufficient professional scepticism and obtained sufficient corroborative evidence to satisfy themselves that Thomas Cook’s low liquidity headroom and financial covenant risks had been reduced to an appropriate level.
“EY and Mr Wilson’s failure to challenge robustly and to apply sufficient professional scepticism in these crucial areas led to significant breaches of auditing standards in both audit years.
“The failings in 2018 are particularly serious given Thomas Cook’s financial position and the heightened risks surrounding the audit work. EY’s remedial measures together with the programme of non-financial sanctions are designed to prevent such failures being repeated.”
The FRC made no assertions that any balances or amounts in either Thomas Cook’s 2017 or 2018 financial statements were misstated, nor that the adoption of the Going Concern basis of accounting was not appropriate.
