FRC fines PwC £1.75m over BT audit fraud discovery

The Financial Reporting Council (FRC) had fined auditor PricewaterhouseCoopers (PwC) £1.75m and audit partner Richard Hughes after it failed to properly challenge UK telecoms group BT once a £513m fraud was discovered in BT’s Italian operations. 

Hughes, audit engagement partner, has been issued with a £42,000 fine in relation to the statutory audit of the financial statements of BT. 

The report found that PwC and Hughes failed to act with the “requisite professional scepticism”, did not obtain sufficient appropriate audit evidence, and did not properly determine whether the changes in accounting estimates were appropriate. 

In relation to the total sum of the BT Italy Adjustments, it 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”.

Claudia Mortimore, deputy executive counsel, said: “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.” 

She added: “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”.

PwC’s fine would have been £2.5m had it not admitted to the breaches and settled early.

Hughes avoided a £60,000 fine after admitting to the breach, the FRC said.

Accountancy Today has contacted PwC for comment.