he UK’s regulator the Financial Reporting Council (FCR) has fined PwC £1.8 million for the way it handled auditing of FTSE 100 telecoms company BT.
The fine was cut from £2.5 million after PwC held its hands up to the failure in its proceedings. The accounting anomalies amounted to £512 million. PwC had failed to present sufficient or solid audit evidence after discovering the fraud in BT’s Italian operations during its 2017 audit of the firm.
Richard Hughes, the partner in charge of the audit, has also been fined £42,000, cut from £60,000.
The FRC stated: “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 auditors’ breaches were not found to have been “intentional, dishonest, deliberate or reckless”, but the FRC said they had not met standards.
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Buy a Cornwall holiday home and get up to £10,000 towards stamp dutyClaudia Mortimore, the FRC’s 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.
“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.”
A PwC spokesperson said: “The FRC’s finding relates to a narrow element of the audit and the regulator has not found that the 2017 Financial Statements for BT were misstated, or that the sum of the BT Italy adjustments was wrong.”
“We have made significant investment in strengthening audit quality in recent years, which has been recognised in improved quality inspection results.”
Paul Brehony, partner at Signature Litigation, added: “A lack of professional scepticism is becoming a recurring theme in FRC feedback following fines and regulatory findings.
“The fine related to PwC’s 2017 audit of BT and was confined to its Italian operations – so it is relatively historic. Time will tell if this is an area the profession is learning to grapple with a little better. It is certainly an area of regulatory focus.”
