Pirc advises blocking PricewaterhouseCoopers reappointment at Tui after worries over black hole
Tui Travel is facing a shareholder rebellion next week over its controversial decision to part with KPMG as its auditor shortly after the accounting firm discovered a �117m bookkeeping black hole in the tour operator's British business.
Powerful shareholder advisory groups Pirc and the Association of British Insurers have both highlighted serious concerns about Tui's treatment of KPMG ahead of the FTSE 100 firm's annual meeting in London next Thursday.
Pirc has recommended investors oppose a resolution to appoint PricewaterhouseCoopers as replacement auditors. The ABI meanwhile has issued what is believed to be its first "red-top" governance warning in relation to a vote to change an auditor.
It is the latest stakeholder protest over an affair that critics claim raises serious questions about the conduct of the majority shareholder, German group Tui AG.
While a damaging protest vote is now expected, Tui AG's 54% shareholding ensures the vote on appointment of PwC ? which is already auditor to the German group ? is passed.
Early last year KPMG discovered a basic error in book-keeping processes at the tour operating firm's British subsidiary, Tui UK Limited. The discovery was made within months of taking over as auditors from PwC.
In its advice to shareholders, Pirc says: "The company is now seeking to reinstate PwC as auditor of the continuing entity which we regard as unacceptable."
The ABI said: "We have red-topped the report to highlight serious concerns regarding due process and overall governance."
Late last year Tui was forced to issue a series of statements to investors detailing how some �117m, said to be owed to Tui, was in fact an illusory figure in its accounts. This error at Tui UK had been building over 5-7 years ? but had not been spotted by PwC.
The episode led Paul Bowtell, finance director at parent group Tui Travel, to resign and forced a complete overhaul of Tui UK's management team.
The embarrassing blunder became a corporate governance scandal four weeks ago when Tui revealed relations with KPMG had reached such a low that they could no longer work together. In a highly unusual move the accountancy firm set out the background to the falling out in the statutory letter it is required to file at Companies House on stepping down as auditor.
"We have had extensive discussions with the directors of [Tui] over the background to these [failures] ? Over the course of these discussions our relationship with certain directors became increasingly strained," wrote Oliver Tant, KPMG's most senior UK audit partner. "As a result, we are not confident that in the future we could carry out an audit of the company to the appropriate standard."
A week later the Tui audit committee chairman, Jeremy Hicks, the man who had led the internal postmortem of the accounting blunder, resigned in protest at the board's treatment of KPMG. Fellow audit committee member Giles Thorley also quit.
This month, one major shareholder said: "Why is it that Hicks has resigned? And who on earth is going to be the next chairman of the audit committee?"
Source: http://www.guardian.co.uk/business/2011/jan/25/tui-travel-pwc-pricewaterhousecoopers-auditors
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