MPs have accused auditors of being “complicit” in the recent failure of British corporate giants, after it emerged that Thomas Cook paid PwC up to £21m in consultancy fees.
The travel group which collapsed last month, putting 9,000 UK jobs in jeopardy, had paid the sum to its former auditor for consultancy and non-audit work between 2007 and 2016, MPs were told on Tuesday.
During an evidence session of auditors facing the Commons Business, Energy and Industrial Strategy (BEIS) committee, PwC’s head of audit, Hemione Hudson, told MPs that the firm also earned £4m from providing the travel company with advice on pay levels for executives, at the same time as auditing the accounts between 2007 and 2012.
Thomas Cook chief executive Peter Fankhauser and other directors faced criticism for the operator’s executive pay policy in the wake of the company’s collapse, including from the prime minister, sparking a separate inquiry by the committee.
It also emerged that EY, the accountancy firm that replaced PwC as Thomas Cook’s auditor in 2017, was paid a total of £10m for auditing and non-audit work.
The revelations led committee chair Rachel Reeves to call the firms “complicit” in Thomas Cook’s downfall by, not providing a check against the company’s hubristic assessment of its business’s future.
She said: “How many more company failures, how many more egregious cases of accounting do we need? We’ve had BHS, Carillion 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 is 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.”
Ms Hudson told the committee that there were now “significant restrictions” on additional services that can be provided by a firm’s auditor and insisted that PwC’s work in relation to Thomas Cook was “in accordance with the rules that were in place at the time”.
The Financial Reporting Council (FRC) is currently investigating EY’s role in signing off Thomas Cook’s last set of accounts – for 2018 – prior to the tour operator going bust.
Any wrongdoing found by the FRC could lead to censure and hefty fines for those responsible.
Previous investigations by the FRC led to a £6.5m penalty fine for PwC over its audit of BHS prior to its collapse, and a £4m fine for KPMG over its oversight of Co-op Bank’s purchase of Britannia Building Society.
Auditors have been plagued with concerns over potential conflicts of interest in their sector, with accounting giants – PwC, EY, Deloitte and KPMG – providing other financial services to businesses, in addition to auditing.