The U.K.’s accounting watchdog opened an investigation into Ernst & Young’s audit of Thomas Cook Group Plc’s financial statements after the 178-year-old tour operator collapsed.
The Financial Reporting Council began the probe amid a growing political outcry over the failure last month, which cost thousands of jobs and left tourists stranded across Europe. The Big Four accounting firms have come under intense scrutiny in the U.K. following the collapse of outsourcing contractor Carillion PLC, bakery chain Patisserie Holdings Plc and other companies.
EY has been notified of the of the FRC’s intention to investigate the audit and “will be fully cooperating” with the regulator, a spokeswoman for the firm said.
The tour operator stopped operations immediately a week ago, stranding 150,000 customers overseas, as a 900 million pound ($1.1 billion) rescue plan foundered when the U.K. government refused to provide additional financing. Business Secretary Andrea Leadsom has asked the state Insolvency Service to investigate the responsibility of the company’s directors and whether any action they took may have “caused detriment” to lenders or pensions.
In its review of Thomas Cook’s interim 2019 results in May, EY flagged that conditions at the company indicate that “a material uncertainty” exists which “may cast significant doubt on the company’s ability to continue as a going concern.”
Nevertheless, the opening of yet another probe into one of of the Big Four accounting firms will trigger fresh questions about their auditing competence. The FRC said over the summer that a quarter of the audits it reviewed for 2017 fell below an acceptable standard.
The growing number of investigations into the four firms, which include Carillion auditor KPMG, PricewaterhouseCoopers and Deloitte LLP, has sparked calls from Britain’s antitrust regulator for the firms to split their accounting and consulting arms to avoid potential conflicts of interest.
The FRC is focusing on EY’s audit of Thomas Cook’s 2018 statements but said in a statement Tuesday that it will “keep under close review the scope of this investigation and the question of whether to open any other investigation in relation to Thomas Cook,” in cooperation with other regulators.
The Civil Aviation Authority said Tuesday that 115,000 people left stranded by the collapse of Thomas Cook had been flown back to the U.K. on 530 flights in the first week of a rescue operation dubbed Operation Matterhorn. The government is in the process of refunding 360,000 people for future bookings.
-- Hugo Miller, Bloomberg News
