Thomas Cook paid auditors £21m in consultancy fees
The travel firm’s collapse put 9,000 UK jobs at risks and disrupted the travel plans of one million holidaymakers with future bookings.
Thomas Cook’s former auditor, PwC, was paid £21 million for providing consultancy and non-audit work for the travel firm between 2007 and 2016, MPs have been told.
Rival accountancy firm EY, which replaced PwC in 2017, also pocketed £2.4 million in non-audit work on top of £7.6 million paid for auditing.
The revelation to MPs on the Commons Business, Energy and Industrial Strategy Committee (BEIS) led to its chair Rachel Reeves calling the firms “complicit” in Thomas Cook’s downfall by not pushing back against the company’s over-confident assessment of the business’s future.
She said: “How many more company failures, how many more egregious cases of accounting do we need? We’ve had BHS, Carllion and Patisserie Valerie, and now we’ve had Thomas Cook.
“How many more do we need before your industry opens its eyes and recognises that you’re complicit in all of this and you need to reform?
“I think the conclusion policy makers will take from today that we can’t rely on you to do the right thing and legislation is needed to have a tougher regulator.
“We need tougher regulation because your industry is not willing to make the changes needed. Reform is long overdue and the evidence today makes it clear that that moment has got to come and got to come soon otherwise we’ll have more business failures and you will be complicit in those.”
The criticism came after PwC’s head of audit, Hemione Hudson, said it also provided the travel company with advice on pay levels for executives at the same time as auditing the accounts between 2007 and 2012, earning £4 million.
She told the committee that there are now “significant restrictions” on the additional services that can be provided by a firm’s auditor, but insisted that PwC’s work in relation to Thomas Cook was “in accordance with the rules that were in place at the time”.
Ms Hudson said earlier this year PwC voluntarily announced that it will phase out selling non-essential consulting services to its FTSE 350 audit clients.
She said: “I don’t think doing those non-audit services would have impacted the quality of the audit work, but I do think it’s very important that we do have a trusted audit profession.”
Committee chair Rachel Reeves accused PwC of poor behaviour by offering auditing services and consultancy services at the same time for Thomas Cook.
She said: “The behaviour of your firm and the other big audit firms only changes because the rules change, and that’s the only thing that changes your behaviour.
“It is only public pressure and a change in the laws that get your companies to change.
“Without changes in the laws you’d carry on doing things exactly as they are before, which is why it’s so imperative that the Government actually changes the law to stop companies like yours to stop doing work on the consultancy side and the audit side.”
Ms Reeves asked Ms Hudson if, in hindsight, providing advice to Thomas Cook’s remuneration committee on setting bonuses at the same time as auditing the business was “the wrong thing to do”.
Ms Hudson replied that it was appropriate “at the time”, but when pressed on the matter, she acknowledged that “in the current environment we wouldn’t do it”.
Thomas Cook collapsed last month, putting 9,000 UK jobs at risks and disrupting the travel plans of one million holidaymakers with future bookings.
One of the criticisms levelled at the company was the use of so-called “one off” payments and “goodwill” appearing on the balance sheet over several years.
Richard Wilson, audit partner at EY, admitted in hindsight the “goodwill” should have been written down sooner, after MPs said it did not make common sense for auditors to sign off the final accounts before the collapse.