Jessica Fino 29 Jun 2017 09:52am

FRC opens investigation into PwC's BT audit

The UK’s accountancy watchdog has launched an investigation into PwC’s audit of BT following a £530m accounting scandal in its Italian arm
Caption: BT replaced PwC with KPMG last month

The Financial Reporting Council (FRC) said today the investigation followed the completion of initial enquiries and related to the telecommunications group’s accounting issues in its Italian operations.

It also said the probe was under the audit enforcement procedure and related to the financial statements of BT produced by PwC for the years ended 31 March 2015 to 2017 inclusive.

The investigation comes less than a month after BT replaced PwC with KPMG as auditors, ending a 33-year relationship.

At the time of the appointment, BT refused to comment on speculation that PwC had been replaced for failing to discover irregularities at the group's Italian business, BT Italia. However, when the scandal was first revealed in January, BT confirmed that its audit committee had reviewed the timetable for tendering. It added that the committee could decide to accelerate the planned appointment of new auditors if appropriate, for example, for service quality or independence reasons.

BT brought in KPMG to carry out an independent review of the Italian business following an internal investigation last October. The firm discovered that historical accounting errors identified in BT’s Italian business would cost the business up to £530m, nearly £400m higher than the internal investigation estimated. It saw the company’s market value dive almost 20%.

A PwC spokesperson said today, "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."

BT said, “It would be inappropriate for us to comment further at this stage.”

Last month PwC was severely reprimanded and ordered to pay £5m by the FRC over its audit of the collapsed social housing maintenance company Connaught.

According to FRC’s audit quality report published in June, PwC was one of only two firms – the other is EY – to have no audits classified as needing significant improvements. However, the report still found flaws when it came to two of the 27 audits reviewed, although in neither case were these significant.