FRC fines PwC £1.75m over BT audit

PricewaterhouseCoopers (PwC) and audit partner, Richard Hughes, have been fined by the Financial Reporting Council (FRC) in relation to the statutory audits of the financial statements of BT Group for the 2016/17 financial year.

PwC received a financial sanction of £1.75m and Hughes received a fine of £42,000, reduced from £2.5m and £60,000 respectively due to early admissions of rule breaches.

Both also received non-financial sanctions of a severe reprimand and a declaration that the audit report did not satisfy the relevant requirements.

PwC and Hughes admitted breaches of relevant requirements in relation to the audit of adjustments between the current and prior years disclosed by BT in its financial statements for the 2016/17 financial year, which were made following the identification of a fraud in its Italian operations in 2016.

The FRC noted that the scale of the BT Italy fraud was such that in the 2016/17 financial statements BT disclosed adjustments of around £513m.

These adjustments were made up of corrections of prior period errors of £268m and changes in accounting estimates of £245m.

The FRC stated that two debt adjustments totalling £72m were not approached by PwC and Hughes with the “necessary professional scepticism” in the audit and that they failed to adequately document their audit work across the entirety of the BT Italy adjustments.

The Executive Council clarified that it had not made a finding that the 2016/17 financial statements were misstated, that the total sum of the BT Italy adjustments was wrong, or that the breaches were intentional, dishonest or reckless.

“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,” commented Executive Counsel deputy, Claudia Mortimore.

“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.

“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.”

    Share Story:

Recent Stories


Are current roads into retirement delivering member value?
Laura Blows explores HSBC Master Trust’s recent report, Converting pension pots into incomes, with HSBC Retirement Services CEO, Alison Hatcher.

Savings and finance at retirement
Laura Blows is joined by Claire Felgate, Head of Global Consultant Relations, UK, at BlackRock, to discuss savings and finance at retirement. Please click here for an edited write-up of the video

Making pension engagement enjoyable through technology
Laura Blows speaks to Nick Hall, business development director and Chartered Financial Planner at UK-based Wealth Wizards about the opportunities that technology provides for increasing people’s engagement with pensions and increasing their retirement wealth. Please click here for an edited write-up of the video

Pension portfolios – the role of asset-backed securities
Laura Blows is joined by Royal London Asset Management (RLAM) head of sterling credit research, Martin Foden, and its Senior Fund Manager, Shalin Shah to discuss the role of asset-backed securities (ABS) within pension fund portfolios
Incorporating ESG into fixed income
Laura Blows is joined by TCW head of fixed income ESG, Jamie Franco, to discuss incorporating environmental, social and governance (ESG) strategies into fixed income portfolios

Advertisement