PwC receives £1.7 million fine for BT audit

Big Four firm PwC has picked up a million-pound find for failings relating to its audit for BT Group. The news comes as the UK prepares to bring in major industry reforms, in response to a number of high-profile scandals.

In mid-2016, telecommunications giant BT discovered fraud in its Italian operations. The company’s financial statements in 2017 subsequently saw it disclose adjustments of more than £500 million. These included corrections of previous errors of £268 million and changes in accounting estimates of £245 million. BT also revealed debt adjustments of £72 million in its accounts to the end of March 2017, which were examined by auditor PwC.

Now, an investigation from the Financial Reporting Council (FRC) has determined that PwC, and Partner Richard Hughes “failed” to approach the audit of BT’s treatment of the debt adjustments with “the necessary professional scepticism”, adding that they had not “adequately” documented the work across the entirety of the BT Italy adjustments.

Claudia Mortimore, Deputy Executive Counsel at the FRC, noted, “In determining the financial impact of a major fraud detected within a business, difficult but important issues relating to appropriate accounting treatment and disclosures will need to be addressed… It is vital that these are subject to robust audit so that the users of financial statements can have confidence that the financial impact is properly and accurately stated in subsequent financial statements.”

While PwC has said it is “sorry” for the aspects of the audit which were not of the “required standard”, the FRC has emphasised that there was no finding that BT’s 2017 financial statements were misstated, that the total sum of the BT Italy adjustments were wrong, or that the breaches were “intentional, dishonest or reckless”. Due to the severity of this, the watchdog deployed notable sanctions for both the company and its Partner.

PwC was fined £1.75 million, while the FRC also handed Hughes a £42,000 penalty for his role on the audit. Both PwC and Hughes admitted the breaches which were “made following the identification of a fraud in its Italian operations in 2016,” the FRC said in a statement.

Earlier in the summer, PwC was also stung by the FRC to the tune of £5 million for a series of poor audits of UK construction firms Galliford Try and Kier. The news comes as the FRC looks to crack down on similar audit failings by the Big Four – also including Deloitte, EY and KPMG – which have led to a succession of high-profile business collapses in recent years.

In order to avoid more stringent action from the regulator, those firms are presenting improved accuracy rates at present. However, critics maintain that the driving force behind these improvements is that the firms have ‘de-risked’ their client bases; cutting more difficult clients that other mid-tier firms will then take on, and struggle with.