Big Four penalty
PwC fined £2.5 million after BT audit failure
Big Four accountant PwC has been fined £2.5 million after admitting that its audit work on BT’s 2017 accounts, following the telecoms group’s Italian accounting scandal, was not up to standard.
BT confirmed in October 2016 that it had problems in Italy and set aside £145 million to deal with the problem.
But within months it accepted it was more serious than had been thought and increased the provision to more than £500m.
Profits in Italy had been overstated for several years because of “improper accounting practices and a complex set of improper sales, purchase, factoring and leasing transactions”.
PwC had been BT’s auditor for 33 years until KPMG won the contract shortly after the Italian scandal emerged.
The Financial Reporting Council had been investigating PwC’s audits of BT’s 2015, 2016 and 2017 accounts but decided that only the last did not meet its standards.
It found PwC had failed to act with “the requisite professional scepticism” when deciding how to account for the impact of the fraud in financial statements.
The auditors had not obtained “sufficient appropriate audit evidence” when coming to their decisions and had failed to “adequately document their work”.
The FRC accepted that BT’s 2017 accounts were not misstated and that the total provision recorded was correct.
However, it issued a fine of £2.5 million for the audit work, reduced to £1.75 million after PwC admitted its shortcomings. A £60,000 fine for team leader Richard Hughes was reduced to £42,000. It is understood PwC will pay the fine on behalf of Hughes, who retired last month.
A spokeswoman for PwC said: “We are sorry that aspects of this audit were not of the required standard. The FRC’s finding relates to a narrow element of the audit and [it] has not found that the 2017 financial statements for BT were misstated, or that the sum of the BT Italy adjustments was wrong.”