EY has been fined nearly £5 million for serious breaches of auditing standards following its involvement in the audit of Thomas Cook in the years prior to the travel company’s collapse in 2019. The UK’s audit regulator, the Financial Reporting Council (FRC), found significant failings in EY’s assessment of Thomas Cook’s financial statements for the years 2017 and 2018.
The travel company, which was the world’s oldest operator of its kind, went bankrupt in 2019 after failing to secure a rescue plan to manage a £1.7 billion debt. The collapse put 9,000 jobs at risk and led to a massive operation to repatriate 150,000 British tourists stranded abroad. The Thomas Cook brand was later bought by the Chinese company Fosun, before being sold to Polish travel platform eSky Group in 2024.
The FRC revealed that EY, led by partner Richard Wilson, failed to appropriately assess Thomas Cook’s financial situation during the critical period, notably in regard to the company’s going concern status. The going concern assessment determines whether a company has the financial stability to continue operating. The investigation concluded that EY did not sufficiently challenge Thomas Cook’s management on its financial standing, failing to identify critical risks that could threaten its survival.
The investigation also highlighted issues with EY’s handling of Thomas Cook’s goodwill balance, which accounted for 40% of the company’s assets at the time. The goodwill, valued at £2.6 billion, represents the intangible value of a business beyond its physical assets, including brand reputation and customer loyalty. The FRC found that the audit of goodwill was particularly problematic, as Thomas Cook’s deteriorating trading performance raised concerns about the potential impairment of this balance.
Moreover, the FRC flagged concerns over EY’s independence, noting that the long-standing relationship between the restructuring partner and Thomas Cook’s CFO presented a “familiarity threat.” This relationship compromised EY’s ability to independently assess the financial position of the company.
Despite the severity of these breaches, the FRC clarified that none of the failings were intentional, reckless, or dishonest. Both EY and Richard Wilson cooperated with the investigation and admitted to the shortcomings.
As a result, EY was fined £6.5 million, which was reduced to £4.9 million in light of its cooperation and acknowledgment of the failures. Wilson was fined £140,000, which was also reduced to £105,000 under the same terms. Additionally, EY covered the costs associated with the FRC’s investigation.
In a statement, EY expressed regret for the lapses in its audits of Thomas Cook’s financial statements. The firm affirmed its commitment to delivering high-quality audits and vowed to implement stronger procedures, training, and global audit methodologies to prevent similar mistakes in the future. EY also committed to reinforcing a culture of professional scepticism within its audit teams and investing in new technology and processes to drive improvements.
This fine serves as a significant reminder of the importance of thorough and independent audits, especially in the case of companies facing financial instability. The failure of Thomas Cook, once a giant in the travel industry, highlights the critical role that auditors play in ensuring the accuracy and reliability of financial assessments.
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