One month after the final departure of Thomas Cook flights, the auditors who signed off the travel firm's accounts have admitted that £1.1bn “goodwill” was overstated.
The chair, Rachel Reeves, challenged them on the value of the goodwill kept on the balance sheet for 11 years after Thomas Cook’s merger with MyTravel in 2007. It was finally written off in 2018.
She said: “It seems unlikely to me that goodwill could be worth £1.1bn less than it was previously.”
Paul Cragg, audit partner for PwC, said: “The answer has to be yes with hindsight.”
Ms Reeves also criticised the auditors for the way that “exceptional items” had been audited, in a manner that, she said, flattered Thomas Cook’s performance. In total, £1.8bn was stripped out over eight years.
The committee chair challenged the way that PwC had taken fees from Thomas Cook for other work at the same time as auditing its accounts. Between 2007 and 2016 PwC was paid £21m by Thomas Cook for “non-audit services” in addition to fees for auditing.
Rachel Reeves said: “It’s impossible to separate out and get rid of the conflict of interest when the remuneration of the people doing the audit work depends on the success of the other parts of the business advising the same firm that they are auditing.”
Hemione Hudson, head of audit at PwC, said: “I do understand that people are concerned.” She said that the firm would not allow such arrangements today.
There was also concern about how rigorously the two firms had assessed Thomas Cook’s fitness as a going concern.
The 178-year-old travel firm had built a debt pile of £1.7bn by the time it went bust.
EY revealed it is owed £900,000 in unpaid fees by Thomas Cook.