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Following the high-profile collapse of Thomas Cook, the Financial Reporting Council (FRC) have launched an investigation into the audit of the company’s financial statements for the year ended 30 September 2018, conducted by EY.

In Thomas Cook’s , EY concluded ‘that the use of the going concern basis of accounting is appropriate and concur[ed] with the directors that no significant uncertainty has been identified,’ supporting the directors’ conclusion that the company would be viable to continue trading for ‘at least twelve months from the date of approval of the financial statements’. Following this, Thomas Cook released their for 2019 in May, highlighting uncertainties with the new financing arrangements and leading EY to flag  â€˜significant doubt on the company’s ability to continue as a going concern’. The collapse of the company shortly after, in September sparked an investigation by the FRC into EY’s 2018 audit of the company.

The FRC have stated they will broaden the scope of their investigation if required, which may result in Thomas Cook’s previous auditors, PWC, who performed audits for the company from 2008 -2017 being investigated.  If found guilty, the regulator can impose severe sanctions, including fines with no upper limit and suspension of individual accountants.

The liquidation of Thomas Cook follows a series of corporate collapses, including BHS and Carillion, and increased concern regarding the quality and rigour of company audits. The market dominance of the big four (EY, PWC, Deloitte and KPMG) has come under scrutiny, which has led to proposals to make structural changes to the big four, including splitting them into audit and non-audit divisions. The effectiveness of the FRC was also called into question and it is proposed that this will be replaced by the ), a body accountable to Parliament with increased powers to regulate, monitor and impose sanctions on auditors.

In addition to the increased scrutiny surrounding auditing, the FRC announced plans in March to introduce more stringent requirements in relation to whether or not a company is considered a going concern. The revised standard (ISA UK 570 Going Concern) was in September, which includes a stricter definition of ‘going concern’ and will mean the UK will adhere to stricter regulations than current international standards.