EY has been fined £4.9million over its botched audits of Thomas Cook before the travel agent collapsed six years ago.
The Financial Reporting Council (FRC) identified failings related to the big four accountant’s assessment of the High Street holiday group’s financial statements for 2017 and 2018.
Thomas Cook – the world’s oldest travel agent, dating back to the 1840s – went bust in 2019 resulting in 9,000 job losses and leaving 150,000 holidaymakers stranded overseas.
The business has since been resurrected under new ownership as an online brand.
The FRC – which is the watchdog for accountants – said yesterday that EY, and EY partner Richard Wilson, had admitted ‘serious breaches of standards relating to the work performed on two important areas of the financial statements’. Wilson was fined £105,000.
One area where the audit fell short related to so-called ‘goodwill’ – a financial measure of a firm’s intangible assets such as customer base and reputation.
Botched audit: The Financial Reporting Council identified failings related to EY’s assessment of Thomas Cook’s financial statements for 2017 and 2018
Another was in relation to its ability to trade as a ‘going concern’ – another key accounting metric.
At the time of the audits, Thomas Cook’s goodwill balance totalled £2.6billion, around two-fifths of its total assets.
An FRC spokesman said: ‘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.’
The FRC said it was not suggesting the breaches were intentional or reckless and that EY and Wilson co-operated with the investigation.
EY said it ‘deeply regrets’ that the audits fell below the standards of the watchdog.
A spokesman said: ‘We deeply regret that the 2017 and 2018 audits of Thomas Cook fell below the standards that we expect.
We are committed to learning from these mistakes and have strengthened our procedures, training and guidance, as well as our global audit methodology, to address the issues identified.’
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