Accounting firms have not shown a “learning curve” from the collapse of travel company Thomas Cook and builder Carillion, with urgent reform the only way to improve audit quality, a senior MP has said.
Rachel Reeves, a Labour MP who is chairwoman of parliament’s business committee, said the failure of Thomas Cook showed again that accountants were not proactive in “doing the right thing”.
Ms Reeves was holding a hearing with representatives of EY and PwC, who audited Thomas Cook in the years before it collapsed in September, triggering the repatriation of 150,000 British holidaymakers. Addressing the Big Four auditors, which also include Deloitte and KPMG, Ms Reeves hit out at the slow pace of change.
“How many more cases of egregious accounting do we need before your industry opens its eyes and recognises that you are complicit in this and that you need to reform?” she said.
“We can’t rely on you to do the right thing and that legislation is needed to have tougher regulation because... your industry is not willing to make the changes needed.”
EY is being investigated by its regulator, the Financial Reporting Council. EY and PwC representatives told the hearing they stood by their audits of Thomas Cook though with full hindsight some things could have been done differently.
Conservative MP Antoinette Sandbach expressed incredulity at how the auditors “blithely” agreed that Thomas Cook was a “going concern”, with no recent writedown in goodwill until May this year despite profit warnings and the need for cash injections.
PwC’s UK head of audit, Hermione Hudson, said there were considerable “challenging discussions” over the going concern issue, prompting Thomas Cook to delay its annual report. Richard Wilson, an audit partner at EY, said EY had publicly noted “material uncertainty” on the company being a going concern. The auditor is still owed £900,000 (€1m) from Thomas Cook for work completed.