Global audit giant Ernst & Young (EY) has been slapped with a Rs 51 crore fine by the UK’s Financial Reporting Council (FRC) for “serious breaches of standards” in its audits of travel giant Thomas Cook, which collapsed in 2019 under the weight of a Rs 1.78 lakh crore debt.
The watchdog’s investigation revealed significant failings by EY and audit partner Richard Wilson in their review of Thomas Cook’s 2017 and 2018 financial statements. The FRC found that both failed to apply sufficient professional scepticism or properly challenge the company’s management — lapses that compromised the integrity of the audit at a time when the business was teetering on the edge.
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Thomas Cook’s dramatic collapse in September 2019 marked the end of the world’s oldest travel company, founded in 1841. The fallout led to the loss of 9,000 jobs and sparked the UK’s largest peacetime repatriation, as over 150,000 stranded holidaymakers had to be flown home.
The FRC highlighted several key audit lapses, including EY’s insufficient examination of Thomas Cook’s “going concern” status — a critical measure of a company’s ability to stay afloat. Auditors were also found to have inadequately scrutinized the company’s goodwill valuation, which made up a massive 40% of its total assets at a Rs 2.73 lakh crore valuation. Given Thomas Cook’s deteriorating performance, this oversight posed a serious risk that potential impairment was not properly evaluated.
Further compounding the issue was EY’s failure to address a possible “familiarity threat” — stemming from a restructuring partner’s long-term association with Thomas Cook and close ties to the company’s CFO — raising red flags over audit independence.
While the FRC noted that the breaches were not deliberate, reckless, or dishonest, it emphasized their severity. EY’s fine was initially set at Rs 68.25 crore, but was reduced to Rs 51 crore after the firm admitted its shortcomings and cooperated with the investigation. Wilson’s personal fine was also reduced from Rs 14.7 lakh to Rs 11.03 lakh. EY has additionally agreed to cover the full cost of the FRC’s investigation.
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In a statement, EY acknowledged the shortcomings: “We deeply regret that the 2017 and 2018 audits of Thomas Cook fell below the standards we expect. We are committed to learning from these mistakes and have strengthened our procedures, training, and global audit methodology.”
The firm added that it is investing in new technologies and reinforcing a culture of professional scepticism across its audit teams.