PwC has been accused of a conflict of interest for advising Thomas Cook executives on their pay and bonuses while it was also the auditor of the now-defunct travel firm.
The Big Four firm audited Thomas Cook’s accounts between 2008 and 2016. Its accounts show PwC also earned £4m providing “recruitment and remuneration” advice to Thomas Cook between 2007 and 2012, the Financial Times reported.
The paper quoted the head of audit at a rival accounting firm as saying PwC’s dual role represented a “clear conflict” of interest.
A PwC spokesperson said it had stopped advising Thomas Cook’s remuneration committee in 2009.
“The non-audit work as advisers to the remuneration committee… was approved in advance by the audit committee, complied with all relevant regulatory standards, and was disclosed in the company’s annual reports,” the spokesperson told City A.M.
Thomas Cook’s annual report from 2009 said the remuneration committee was “mindful” of PwC’s “dual role”.
“PwC held this dual role because prior to the merger they had acted as remuneration adviser
to MyTravel Group plc and external auditor to Thomas Cook,” it said. Kepler Associates was appointed as external adviser to the committee in 2009.
UK accountants have been banned from providing remuneration advice to directors of firms they audit since 2016.
Thomas Cook used a controversial accounting policy whereby “exceptional items” totalling £1.8bn over eight years were stripped out to boost the firm’s headline results. The resulting figure for underlying operating profit was then used to calculate executives’ bonuses.
PwC signed off on the policy while it was auditing the travel company’s results, but rival firm EY raised concerns about the practice when it took over as auditor in 2017. Around £28m “exceptional items” were reclassified that year, dramatically reducing Thomas Cook’s earnings and leading to a profit warning being issued.
PwC and EY will be grilled by MPs over their work for Thomas Cook on Tuesday.
The Financial Reporting Council is investigating EY’s 2018 audit of the now-collapsed travel company. The regulator said it would “keep under close review” the scope of its investigation and the issue of whether to launch any fresh probes.
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