Financial auditing reform likely to follow Cook collapse

The Times has reported that the Financial Reporting Council, the industry’s regulator, is considering asking the newly elected government if it can introduce banking-style rules on the sector.

This could mean partners would have to return their bonuses if audits were not good enough.

Currently, audit partners share their firm’s overall profits and can be paid more than £800,000 a year.

Thomas Cook’s auditors, EY, came under criticism for using exceptional items to artificially improve underlying performance in the years before the operator’s collapse.

Those special items amounted to £1.8 billion over eight years.

Other scandals have included PwC’s handling of BHS, KPMG’s of Carillion, and Grant Thornton’s of Patisserie Valerie.

Sir John Kingman, chairman of Legal and General, led a review into the financial sector in 2018. However, his 83 recommendations have not been taken up by the government.

A spokesman from the FRC said: "The Kingman review recommended that the government considers using Sarbane-Oxley as a basis for a new internal controls regime.

"The Department for Business, Energy and Industrial Strategy’s initial response to this was broadly supportive. The FRC supports Sir John Kingman’s recommendations."

The Sarbanes-Oxley Act is a 2002 US law designed to help protect investors from fraudulent financial reporting.