PwC fined nearly £1.8m over BT fraud audit failures

theguardian.com:

PwC has been fined almost £1.8m for failing to properly scrutinise the accounts of telecoms company BT after a £500m accounting fraud had been uncovered at its Italian operation.

The accounting giant failed to act with the “requisite professional scepticism” and did not obtain “sufficient appropriate audit evidence” in its work on BT’s 2017 financial statements, which had to be adjusted by £513m because of the Italian scandal, according to the Financial Reporting Council (FRC).

The UK’s accounting regulator also severely reprimanded PwC, which was paid £4.3m for its work on BT’s accounts, and Richard Hughes, the audit engagement partner at the firm. The FRC fined PwC £1.75m and Hughes £42,000.

“The respondents failed to act with the requisite professional scepticism [and] did not obtain sufficient appropriate audit evidence,” the FRC said in its 27-page final ruling published on Monday. “The respondents did not approach the audit of BT’s treatment of the debt adjustments with the necessary professional scepticism and they failed to adequately document their audit work across the entirety of the BT Italy adjustments.”

The 2017 scandal wiped almost £8bn off BT’s market value, prompted a restructure including the axing of 4,000 jobs, and ultimately was a factor that resulted in the departure of former chief executive Gavin Patterson as investors lost confidence in management.

The FRC also said PwC and Hughes had not produced an audit that was understandable to third parties.

“The respondents also failed to prepare audit documentation that was sufficient to enable an experienced auditor, having no previous connection with the audit, to understand the nature, timing and extent of the audit procedures performed,” said the regulator.