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MyTravel fined £240,000 for accounting breach

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19th Jul 2005
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The Financial Services Authority (FSA) has imposed a £240,000 fine on MyTravel Group for failing to inform the market about a change in its profits expectations three years ago.

The fine, imposed on 14 July, relates to events in 2002, when MyTravel's UK division found exposures of £24.3 million in its balance sheet that hadn't been accounted for in the previous year's accounts. MyTravel Group took the decision not to inform the market about the exposures, which was a breach of the stock exchange listing rules.

The FSA considered the breach particularly serious because it occurred during the year when the travel industry was suffering from 9/11 fallout, and any unexpected bad news about profits could have had an especially acute effect on the share price.

MyTravel, which owns Airtours, Going Places and several other travel brands, had made record profits of £147.4 million for the previous year, and announced in November 2001 that it expected similar profits for 2002. But after the slump in travel sales following the events of 9/11, the group suffered first half losses of £122.3 million for the six months ended 30 March 2002 - and said it wasn't sure if business would recover enough to meet the profit forecast for the year. However, on 23 July 2002 MyTravel announced that trading across all divisions was in line with the previously announced profits expectations.

Just days later, around 31 July 2002, MyTravel's then Group Finance Director and Chief Executive Officer became aware of the £24.3 million gap in the UK division's accounts. This sum represented an accumulation of different accounting or reconciliation errors that had been made over several previous years. They decided not to announce these prior years exposures to the market, because they believed the losses would be off-set by some non-recurring gains during the remainder of the year, in which case MyTravel's profit forecast would be unaffected. Crucially, they failed to consult the Board, or to seek any professional help on the matter from the firm's external advisers, before taking the fateful decision.

When the full year's accounts were released in November 2002, MyTravel announced losses of £72.8 million for the year, and finally spilled the beans about the exposures - describing them as cumulative errors from prior years and explaining they had been charged in the 2002 year-end results as exceptional items.

Although the FSA accepts that MyTravel genuinely believed the exposures had been reflected in the profit forecasts, the Authority insists that an announcement should have been made. In its final ruling on the case, the FSA states: 'A company's belief that a decision to write off a large amount can be compensated by offsetting balances in its forecast is not a sufficient basis in itself for the company to conclude that no announcement is necessary; the company must consider whether the market should be given the opportunity to assess the reasonableness of that belief for itself, through an announcement by the company.'

The failure to announce the exposures in July had denied the market the chance to assess their likely impact on MyTravel's share price, said Hector Sants, FSA Managing Director for Wholesale Business: 'The need to inform the market was especially relevant in MyTravel's case where the prevailing business environment was challenging and any announcement in relation to accounting issues would have come as an unwelcome surprise to investors."

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By carnmores
19th Jul 2005 23:02

Who were the auditors i wonder
surely nothing to do with them; shows how tricky it all is; that reminds me are the big firms who sometimes charge out their staff out at a multiple of over 6+x salary still after a cap. i say give them a cap on indemnity if they accept one on their salary / profit shares or fees...

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