Audit watchdog the Financial Reporting Council on Tuesday opened a probe into accountancy giant EY’s auditing of Thomas Cook in the wake of the tour operator’s devastating collapse last week.
The regulator said its enforcement division will look into EY’s work on Thomas Cook’s results for the year to September 2018.
The FRC can fine firms an unlimited amount and ban individuals.
Plans to put the accountancy firm under the spotlight come just over a week after Thomas Cook failed under a £1.7 billion debt pile after it was unable to find a funding lifeline. That left 9000 UK jobs at risk and some 150,000 UK holidaymakers stranded.
EY replaced rival PwC as auditors to Thomas Cook in 2017. The 178-year-old package holidays firm has had three finance chiefs over the past two years, and questions have been raised over its accounting practices.
Thomas Cook in May posted a £1.5 billion first-half loss, and EY warned at the time there was “significant doubt” whether the travel group could continue as a going concern.
Last month Thomas Cook, which has faced increased competition and weaker demand, tried to persuade banks and creditors to accept a complicated restructuring that would involve wiping out the debt and injecting a further £900 million.
Banks were close to accepting that offer but at the last minute demanded a further £200 million “stand-by facility” in case its woes worsened. No rescue deal was agreed.
The FRC today said it “will keep under close review both the scope of this investigation and the question of whether to open any other investigation in relation to Thomas Cook, liaising with other relevant regulators to the fullest extent permissible”.
EY said: “We will be fully cooperating with FRC during their enquiries. It would be inappropriate to comment further at this time.”
The government’s Business, Energy and Industrial Strategy committee is also looking into Thomas Cook’s collapse.
Business Secretary Andrea Leadsom said: “It is vital that when a company like Thomas Cook fails, the circumstances around its collapse are considered in full, including the conduct of its directors and auditors."
Leadsom added: "I have already asked the Insolvency Service to prioritise their review of directors and I welcome the FRC’s decision today to launch an investigation into the audit of Thomas Cook’s 2018 accounts.”
