Cooking All the Books?: PwC in hot water over conflict of interest at Thomas Cook
October 31, 2019
What's going on here?
PwC has been questioned over a possible conflict of interest arising in its roles with Thomas Cook.
What does this mean?
Big four accountancy firm PwC had, for a period of time, acted as both Thomas Cook’s remuneration committee advisor and the company’s external auditor. This presents a potential conflict of interest which has been investigated in light of the recent collapse of Thomas Cook. While a 2009 annual report from Thomas Cook provided that the remuneration committee was “mindful of the dual role” that PwC held, the large fees earned by PwC for its roles could be considered an incentive to provide favourable advice. The revelations have sparked accusations of complicity in Thomas Cook’s recent downfall (for more on that, see our article here); many believe that PwC should have provided checks against Thomas Cook’s careless assessment of its finances.
What's the big picture effect?
The grilling of PwC in relation to its role with Thomas Cook comes amidst a plague of conflict of interest concerns surrounding the big four accountancy firms (they often provide auditing as well as advisory services to their clients).
The questioning concluded with strong criticism of the industry from the chairman of Parliament’s Business Committee. It was said that this once again showed that the industry was never “proactive, it always waits for legislation rather than doing the right thing” and as a result it was suggested that “legislation is needed to have tougher regulation” to prevent the collapse of yet more companies.
Earlier government backed reviews have proposed forcing companies to have two auditors. They would have also required the big four to run their audit and advisory services separately to prevent the potential for “soft audits” in order to win lucrative advisory business.
Lawyers can expect to be called upon to examine potential conflicts of interest as accountancy firms move to protect themselves from hefty fines. Furthermore, if new legislation is enacted then numerous companies will need to restructure in order to meet the demands of the legislation, and advice will be sought regarding whether current practices meet the requirements.
Given the disastrous collapse of Thomas Cook, tighter regulation of the accountancy industry will no doubt be welcomed by those who were adversely affected and it may provide for more secure safeguards in the future.
Report written by Julie Lawford
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