The penalty concludes a near six-year investigation into the firm’s work on Thomas Cook’s accounts for the financial years 2017 and 2018. Thomas Cook collapsed in 2019, causing widespread travel disruption and job losses.

The FRC found EY failed to properly assess the independence of a key restructuring partner involved in the 2018 audit. This partner had previously managed EY’s relationship with Thomas Cook and maintained a close relationship with its chief financial officer, yet performed substantial work on signing off the accounts as a going concern. Despite this, the partner indicated “no exceptions noted” regarding independence on internal checks, and the FRC noted EY admitted the audit file incorrectly stated the team had no prior history with the client. However, the regulator did not find an “actual loss of objectivity” resulted.

Further failings included EY not gathering sufficient evidence for its goodwill impairment assessment and relying on overly optimistic internal forecasts from Thomas Cook for its UK tour division, which were significantly higher than independent predictions. Initial risk models were subsequently revised downwards following discussions involving the restructuring team and Thomas Cook management.

The FRC also fined the responsible audit partner, Richard Wilson, £105,000. Both fines were discounted by 25 per cent for co-operation.

Claudia Mortimore, FRC deputy executive counsel, said: “Thomas Cook’s Goodwill Balance and Going Concern status were fundamental to its financial position and performance.

“EY and Mr Wilson were subject to a public interest duty to comply with auditing standards and robustly challenge the forecasts and assumptions that underpinned Thomas Cook’s valuation of Goodwill. Similarly, in relation to Going Concern they should have exercised sufficient professional scepticism and obtained sufficient corroborative evidence to satisfy themselves that Thomas Cook’s low liquidity headroom and financial covenant risks had been reduced to an appropriate level.”

Ms Mortimore continued: “EY and Mr Wilson’s failure to challenge robustly and to apply sufficient professional scepticism in these crucial areas led to significant breaches of auditing standards in both audit years.

“The failings in 2018 are particularly serious given Thomas Cook’s financial position and the heightened risks surrounding the audit work. EY’s remedial measures together with the programme of non-financial sanctions are designed to prevent such failures being repeated.”

An EY spokesperson said: “The delivery of high-quality audits remains our priority and we deeply regret that the 2017 and 2018 audits of Thomas Cook fell below the standards that we expect.

“We are committed to learning from these mistakes and have strengthened our procedures, training and guidance, as well as our global audit methodology, to address the issues identified.”