Two separate cases have seen EY’s UK wing rack up fines in excess of £5 million. Within the space of a week, the Financial Reporting Council sanctioned the Big Four firm for its auditing role at collapsed airline Thomas Cooke, and for breeching term limits in its work with Stirling Water Seafield Finance.
Thomas Cook collapsed in 2019 after failing to secure a rescue deal. According to the Financial Reporting Council (FRC), the the airline’s goodwill balance was significant, comprising £2.6 billion across the whole group, approximately 40% of total assets.
Following an investigation into the work of EY and its audit engagement partner, Richard Wilson, done for the airline – for the financial years ended 30 September 2017 and 30 September 2018 – the FRC found both audit years showed “particularly serious” faults. This was because in 2018 “Thomas Cook’s deteriorating trading performance” meant there was heightened risk “that the goodwill balance could be impaired.”
The FRC noted that EY and Wilson failed to “approach this audit area with sufficient professional scepticism to properly corroborate management’s assumptions and estimates supporting the goodwill impairment model.” Meanwhile, for going concern, where breaches occurred only in the 2018 audit, EY and Wilson were also found to have “failed to adequately challenge management with regard to sensitivity testing, liquidity, and financial covenant headroom.”
Noting that the firm and the partner were not in a position to properly conclude whether a material uncertainty existed that might cast major doubts over Thomas Cook’s ability to continue as a going concern, the regulator added that this was “a key responsibility that EY and Wilson did not fulfil adequately under the relevant auditing standards”.
While the FRC stated that both audits “failed in their principal objective”, however, the FRC stopped short of suggesting the breaches were intentional, dishonest, deliberate or reckless. With EY and Wilson having cooperated with the executive counsel’s investigation, and admitted serious standards breaches, the watchdog subsequently downgraded its initial £6.5 million financial sanction to £4.8 million, due to a 25% admission discount.
Wilson received a £140,000 fine, which was also discounted to £105,000. And EY also paid the costs of the investigation.
But less than a week after EY had put that incident behind it, the FRC has further rubbed salt into the Big Four firm’s wounds. The watchdog had issued a further £500,000 over its audit of a Scottish water company.
This time, the investigation related to EY and Christopher Voogd, who had audited the accounts of Stirling Water Seafield Finance for the year ended 31 December 2019. In November 2021, EY identified and reported on its own breech of audit rotation rules, causing the FRC to open an investigation at the start of 2023.
The FRC concluded that by undertaking an audit beyond its term, the firm “exceeded the maximum ten-year engagement period for audits of a public interest entity without renewal via a qualifying public tender.” Ruling that EY and Voogd had “failed to ensure that appropriate procedures regarding the continuance of the audit engagement had been followed”, EY was also reprimanded for failing to comply with its quality control obligations regarding independence requirements.
Once again, EY saw its fine reduced, with this fee falling to £325,000 for admissions, while Voogd also saw his £50,000 fine discounted to £32,500. But the total cost for the two incidents still tops £5 million – at a time when EY is already cutting back on spending and its headcount to preserve partner profits.
In early 2025, EY’s UK wing announced its largest executive purge in decades. Employing around 20,000 individuals across the UK, it plans to cut 30 permanent partner roles at the top of its company. At the same time, while 150 roles in its consulting wing are being axed, the firm has now announced it will also be removing a further 30 roles in its legal business.