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| Accountancy profession 'complicit in Thomas Cook failure' | Accountancy profession 'complicit in Thomas Cook failure' |
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| The chair of an influential parliamentary committee has launched a blistering attack on the accounting industry, accusing it of being complicit in the failure of Thomas Cook, Carillion and other firms and called for urgent reform of the sector. | The chair of an influential parliamentary committee has launched a blistering attack on the accounting industry, accusing it of being complicit in the failure of Thomas Cook, Carillion and other firms and called for urgent reform of the sector. |
| Rachel Reeves, who chairs the business, energy and industrial strategy committee, said: “I wonder how many more company failures, how many more egregious cases of accounting do we need? We’ve had BHS, we’ve had Carillion, we’ve had Patisserie Valerie and now we have Thomas Cook. How many more do we need before your industry opens its ideas and recognises that you are complicit in all of this and that you need to reform?” | Rachel Reeves, who chairs the business, energy and industrial strategy committee, said: “I wonder how many more company failures, how many more egregious cases of accounting do we need? We’ve had BHS, we’ve had Carillion, we’ve had Patisserie Valerie and now we have Thomas Cook. How many more do we need before your industry opens its ideas and recognises that you are complicit in all of this and that you need to reform?” |
| She added: “We can’t rely on you to do the right thing and legislation is needed. We need tougher regulation because your industry is not willing to make the changes needed. Reform is long overdue.” | She added: “We can’t rely on you to do the right thing and legislation is needed. We need tougher regulation because your industry is not willing to make the changes needed. Reform is long overdue.” |
| Reeves was speaking as MPs on the committee grilled bosses from PricewaterhouseCoopers and EY, which both audited Thomas Cook’s accounts, and questioned them about potential conflicts of interest. Both firms also did other lucrative work for the collapsed travel company, as well as providing auditing services. | Reeves was speaking as MPs on the committee grilled bosses from PricewaterhouseCoopers and EY, which both audited Thomas Cook’s accounts, and questioned them about potential conflicts of interest. Both firms also did other lucrative work for the collapsed travel company, as well as providing auditing services. |
| MPs heard that PwC was paid £21m for providing consultancy and non-audit work for Thomas Cook between 2007 and 2016, which included advising the company on pay for its executives. EY, which took over from PwC in 2017, provided non-audit services totalling £2.4m. | MPs heard that PwC was paid £21m for providing consultancy and non-audit work for Thomas Cook between 2007 and 2016, which included advising the company on pay for its executives. EY, which took over from PwC in 2017, provided non-audit services totalling £2.4m. |
| Hermione Hudson, PwC’s head of audit, said there are now “significant restrictions” on other work that can be done by a firm’s auditor. She insisted: “I don’t think doing those non-audit services would have impacted the quality of the audit work, but I do think it’s very important that we do have a trusted audit profession.” | Hermione Hudson, PwC’s head of audit, said there are now “significant restrictions” on other work that can be done by a firm’s auditor. She insisted: “I don’t think doing those non-audit services would have impacted the quality of the audit work, but I do think it’s very important that we do have a trusted audit profession.” |
| MPs also questioned the auditors about Thomas Cook’s use of exceptional items – one-off costs – that were stripped out of the main income statement. Hudson acknowledged that £1.8bn of exceptional items over eight years was “a large number”. Both PwC and EY said they had challenged Thomas Cook’s management on the use of exceptional costs. | MPs also questioned the auditors about Thomas Cook’s use of exceptional items – one-off costs – that were stripped out of the main income statement. Hudson acknowledged that £1.8bn of exceptional items over eight years was “a large number”. Both PwC and EY said they had challenged Thomas Cook’s management on the use of exceptional costs. |
| The auditors were also asked why the travel company carried more than £1bn of goodwill – the intangible asset of an acquired company which measures things like reputation, customer base and brand value – on its balance sheet for years, despite its problems, and why it was not written down gradually, rather than being slashed abruptly this year. | |
| Richard Wilson, an audit partner at EY, said “with hindsight” the writedown should have come sooner. The £1.1bn writedown of its MyTravel division pushed Thomas Cook into a £1.5bn first-half loss in May. | |
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| EY | EY |
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