Thomas Cook auditors EY investigated over checking of tour operator’s books before collapse

Watchdog could hit accountants with hefty fine if wrongdoing discovered

Thomas Cook’s auditor is under investigation by the accounting watchdog over its work for the collapsed tour operator.

The Financial Reporting Council (FRC) announced on Tuesday that it has opened a probe into EY, as audit firms are increasingly in the spotlight over their potential role in several high-profile company failures.

The FRC said it will look at EY’s audit of Thomas Cook’s financial statements for the year ending 30 September 2018, adding that the probe could be broadened if required.

That could spell trouble for EY’s Big Four rival, PricewaterhouseCoopers, which was Thomas Cook’s auditor until 2016.

After EY took over, it told Thomas Cook’s internal accountants they should stop reporting regular costs as one-off or “exceptional” items, as they had been doing.

Companies often strip one-off costs out in order to give what they feel is a truer reflection of underlying performance.

The practice also potentially boosted Thomas Cook executives’ bonuses, which were based partly on underlying profits before tax.

Rachel Reeves, chair of the Business, Energy and Industrial Strategy (BEIS) Committee, said last week that people are “appalled that as Thomas Cook mounted up debt and as the company headed for trouble, company bosses were happily pocketing hefty pay packages”.

Analysts have also questioned why it took Thomas Cook more than a decade to write down the value of its MyTravel business, eventually realising a £1bn loss this year.

MyTravel – best-known for its Airtours and Going Places brands – focused on packaged tours which have rapidly declined in popularity as customers increasingly put together their own holidays online.

EY is already set to face scrutiny from the BEIS committee, which last week launched its own inquiry into the collapse of Thomas Cook.

Andrea Leadsom, the business secretary, has also set up a Thomas Cook taskforce to ensure lessons are learnt and to deal with the company’s liquidation, which is being run by the government’s official receiver.

Questions remain over how much the taxpayer will pick up in unpaid wages and redundancy payments to the 9,000 UK-based Thomas Cook staff.

On Monday, it was also revealed that some customers may have to wait up to two months to receive a refund on cancelled holidays.

Additional reporting by PA