As per reports, the UK's accounting regulator has launched an investigation into EY's audit of Thomas Cook's accounts, a little after a week when the world's oldest travel firm collapsed. The Financial Reporting Council has said that its enforcement division is investigating EY's audit of financial statements of Thomas Cook for the year till September 30, 2018.
FRC has reportedly said that it will keep under a close review both the scope of the investigation and the question of whether to open any further investigation linked to Thomas Cook while also being in conjunction with other regulators to the best possible extent. EY took over from PwC as Thomas Cook's auditors in 2017- both companies are UK's big four accountancy companies. Thomas Cook earlier this year had taken £1.5bn first-half loss in May and had released its third profit warning in less than a year.
Thomas Cook had accrued £1.2bn of debt and was forced to underwrite the firm's value and were forced to reduce the value of its MyTravelUK package holiday business by £1.1bn. In those particular sets of accounts, EY had cautioned that there was a significant doubt whether Thomas Cook can continue as a going concern business. On September 30, the FRC had said that it had issued an updated going concern standard following a series of corporate failures in which auditors had unable to flag the concerns about the viability of the company. The now-defunct tours and travel firm has had three different finance chiefs in two years as its financial problems became grave and have come under scrutiny for its accounting methods.
Sten Dauggard became Thomas Cook's chief financial officer in December 2018 as Bill Scott had quit the job in less than a year after the profit warning. Scott had replaced Michael Healy in January 2018 as Healy quit after 5 years in job. Daugaard had reportedly modified the way Thomas Cook was reporting its accounts and had pressed for inclusion of items that had been treated as exceptional costs for years, even if paying directors and meeting banking conditions. Reports say he had told analysts in November that when he looked at the books of accounts one thing that he could immediately observe was that size of exceptional costs. The FRC aims to complete investigations within two years.
(With inputs from agencies)