The UK accounting regulator has fined PwC £1.75mn for failing to properly challenge BT’s 2017 results after the discovery of an alleged fraud at the telecom group’s Italian operations the previous year.
The Financial Reporting Council on Monday said PwC and partner Richard Hughes, who led the BT audit, did not treat certain adjustments made to the 2017 accounts with “the necessary professional scepticism”.
The alleged fraud at the telecom group’s Italian operations wiped billions of pounds off the company’s value when it was revealed by BT and triggered a criminal trial in Italy, which is ongoing.
It resulted in a pay cut for then-BT chief executive Gavin Patterson and a wave of scrutiny over the group’s strategy and corporate oversight.
BT adjusted its annual report for the 12 months to March 2017 by about £513mn following the discovery of the accounting scandal.
According to the FRC, the irregularities called for a “need for heightened professional scepticism”. However, PwC did not obtain appropriate audit evidence in relation to debt adjustments or determine whether changes in accounting estimates were appropriate after the alleged fraud was discovered.
“The sanctions imposed in this case, where certain elements of the adjustments following a fraud were not subject to the required level of professional scepticism, underscore this message and will serve as a timely reminder to the profession,” said Claudia Mortimore, FRC deputy executive counsel.
Hughes was fined £42,000, discounted from £60,000 after he admitted to the breaches at an early stage. PwC’s fine was also reduced by 30 per cent, to £1.75mn for the same reason.
The fine is the third in as many months for PwC. In June, the firm was fined twice in one day for audit failures at London-listed construction groups Kier and Galliford Try and told to pay £5mn.
Overall, the FRC imposed a record £46.5mn on accounting groups and partners in the 12 months to March. After discounts for co-operation, fines reached a new high of £34.6mn.
In a statement, PwC said it was sorry that aspects of the audit “were not of the required standard”. The company noted that the regulator had not found that the 2017 accounts were misstated, or that the sum of the BT Italy adjustments was wrong.
“We have made significant investment in strengthening audit quality in recent years, which has been recognised in improved quality inspection results. We remain committed to maintaining and building on this progress through the delivery of consistently high-quality audits,” said the Big Four firm.