FRC launches investigation into PwC over BT audits

FRC launches investigation into PwC over BT audits

The investigation relates to PwC’s audits of the financial statements of BT Group between the years March 2015 and 2017

The Financial Reporting Council (FRC) has launched an investigation into PwC’s audits of the financial statements of BT Group between the years March 2015 and 2017.

The telecoms giant revealed accounting irregularities in its Italian branch following an internal investigation in which BT Italia was found to be overstating its earnings for several years.

These accounting errors will cost the group £530m. While that number was initially forecast to be £145m in October 2016, the figure dramatically inflated when a complex web of improper practices was discovered, including improper sales, purchase, factoring and leasing transactions. The fraud extended from complex procedures to simple ones such as moving expenses into the “capital expenditure” column, which is ordinarily reserved for building and acquiring assets.

The accounting watchdog confirmed an investigation was underway following “announcements by BT in relation to accounting issues in its Italian operations.”

BT commented: “We note the FRC’s announcement that it has commenced an investigation into the audits by PWC. It would be inappropriate for us to comment further at this stage.”

Following the scandal in January, BT’s share prices plummeted by 19%, removing roughly £7bn from its value and forcing the CEO to forfeit his bonus and earn £4m less than the previous year. BT also suspended several members of BT Italia’s senior management team and replaced the chief executive Gianluca Cimini.

The scandal is one of many currently faced by the embattled telecoms group, who recently cut 4,000 jobs as part of an international overhaul. In March, the company was fined a record £42m by Ofcom for regulatory breaches in the company’s Openreach branch, with further compensation payments of £300m expected.

In response to the FRC’s investigation, PwC commented: “We will continue to co-operate fully with the FRC in its enquiries. The regulator has a duty to investigate where they believe there is a public interest, in order to give confidence to the financial markets.

“Audit quality is of paramount importance to the firm. The FRC’s annual reviews of our audit work, policies and procedures show a continued trend of improvement in our work and we use the FRC’s insights, together with our own reviews, to continuously improve how we deliver high quality audits.”

In June 2017 BT appointed KPMG as its new auditor, terminating a relationship with PwC that began in 1984.

The FRC has recently closed an investigation into PwC’s auditing of Tesco.

Whitepaper

The Future of Finance is in the CFO's Hands

Business The Future of Finance is in the CFO's Hands

3m
Save a Week a Month Consolidating Accounts

Accounting Software Save a Week a Month Consolidating Accounts

4m
Mitigating Risk Through Internal Control

Legal Mitigating Risk Through Internal Control

5m
Could tax season have run more efficiently?

Corporate Tax Could tax season have run more efficiently?

5m

Related Articles

PwC accountant caught with 1700 upskirting images on phone

Accounting Firms PwC accountant caught with 1700 upskirting images on phone

5d Chris Jewers
FRC audit inspection finds no improvement on last year

Accounting Firms FRC audit inspection finds no improvement on last year

2w Chris Jewers
PwC forges maritime supply chain link with Pole Star

Accounting Firms PwC forges maritime supply chain link with Pole Star

10m Chris Warmoll, Writer
KPMG replaces PwC as Croda auditor

Accounting Firms KPMG replaces PwC as Croda auditor

2y Emma Smith, Managing Editor
FRC closes investigation into PwC over Barclays compliance

Accounting Firms FRC closes investigation into PwC over Barclays compliance

2y Alia Shoaib, Reporter
Top 50+50: Firms fall short on diversity

Accounting Firms Top 50+50: Firms fall short on diversity

2y Alia Shoaib, Reporter
PwC’s five strategic priorities for becoming ‘the leading professional services firm’

Accounting Firms PwC’s five strategic priorities for becoming ‘the leading professional services firm’

2y Emma Smith, Managing Editor
FRC closes KPMG HBOS audit investigation, Treasury Committee expects ‘full explanation’

Accounting Firms FRC closes KPMG HBOS audit investigation, Treasury Committee expects ‘full explanation’

2y Emma Smith, Managing Editor