PwC's audit of BT Italia accounts to be investigated by accounting watchdog

The audit of BT's accounts by PwC will come under the scanner of the accounting watchdog after the telecoms group, earlier this year, identified a £530-million black hole in its Italian business.

According to The Financial Reporting Council, (FRC), following initial enquiries it was investigating audits carried out by the accounting giant of BT's financial statements over three years.

The investigation will cover the years ending March 2015 to March 2017.

The FRC said, "The decision to investigate follows announcements by BT in relation to accounting issues in its Italian operations."

The body has powers to issue fines or bans on those found to be in serious breach of its rules.

The details of accounting errors in its Italian business came to light last year but its estimate of the impact of the scandal increased to £530 million in January this year, which sent the telcom operator's shares plunging.

The company's own review had revealed improper practices that had resulted in the overstatement of earnings on its Italian businesses over a number of years.

The cost of the scandal helped annual profits plunge 19 per cent to £2.4 billion for the year to the end of March and saw chief executive Gavin Patterson lose millions in bonuses.

KPMG replaced PwC in June.

BT has warned that the scandal will affect its results for the next two years.

The FRC said that "following completion of initial inquiries", it would carry out an investigation under its Audit Enforcement Procedure into PwC's audits.

Allegations of "inappropriate behaviour" at the company's Italian operations first emerged last summer and the company started conducting its own internal investigation in October 2016.

The head of BT Europe, Corrado Sciolla, and BT Italy chief executive Gianluca Cimini and a number of other senior managers lost their jobs over the scandal.

PwC said, "We will continue to co-operate fully with the FRC in its inquiries. 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."