New year, new auditor for TUI
After writing off £117m in restatements on its 2009 accounts due to accounting software problems, travel group TUI Travel has parted ways with its auditor KPMG.
On 29 December, the firm announced it will put forward a resolution to appoint PwC as its group auditor at its AGM on 3 February.
“The company has had a good working relationship with its current Group Auditors, KPMG Audit Plc, since the formation of TUI Travel in 2007 and before that as Group Auditors to First Choice Holidays PLC. Following the restatement of the results for the financial year ended 30 September 2009, TUI Travel has agreed with KPMG that it is appropriate that new group auditors should be appointed,” the firm commented.
The bland regulatory statement doesn’t quite do justice to the messy saga that led to the breakdown of the client-auditor relationship. A surprisingly detailed letter from KPMG explaining its decision to cease acting as auditor (a requirement under section 519 of the Companies Act 2006) reveals more.
According to KPMG’s s519 resignation letter, “the major part of the restatement is attributable to failures in the systems and controls of the group’s UK tour operator business over an extended period of time”. The unmatched credits, the auditor noted, were the result of “inappropriate analysis, judgements and accounting processes undertaken by the directors”.
After extensive discussions with the directors, “our relationship with certain directors became increasingly strained,” KPMG noted. “As a result we are not confident that in the future we could cann out an audit of the company to the appropriate standard, but others may be able to do so. Accordingly we have decided not to seek reappointment as auditors.”
A previous announcement explaining the company’s restatement of £117m of “irrecoverable balances” in the accounts for the year ending 30 September 2009 and a trading statement issued on 21 October shed further light.
The restatement stemmed from TUI’s inability to reconcile balances from separate legacy accounting systems from when Thomson and First Choice merged in 2007. According to some reports, in the transition, the new system failed to account for discounts offered by First Choice to customers. The company initially acknowledged in its third quarter results in August that £29m of irrecoverable balances would need to be written off the 2009 accounts, but after the auditor’s intervention, £88m was added to these sums for the 2010 full year results.
The restated results for the year ended 30 September 2009 included:
- A reduction of underlying operating profit for 2009 of £42m from £443m to £401m
- A £70m reduction in opening reserves at 1 October 2008 from £2,286m to £2,216m.
TUI undertook a “full and detailed review” of its systems and processes to rectify any weaknesses and announced that chief financial officer Paul Bowtell would leave the company at the end of 2010, once the 2010 results were finalised.
CEO Peter Long commented: “It is now clear that at the time of merger there were weaknesses in the legacy systems we chose to use in the TUI UK business. Despite the fact that this situation had built up over a number of years, Paul is behaving honourably and I am disappointed that he will be leaving the group.”
On the day after it announced the change in auditors, TUI released a further statement reporting that the company’s five directors had sold £4.9m of shares that had vested under two bonus schemes. Long received just under £1.8m for the sale of his full allocation, while the outgoing CFO received an allocation of £757,000, of which he sold a fifth for around £160,000.
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