Financial services firm PwC has been slapped with a fine by the Financial Reporting Council over its work in auditing BT, following the identification of fraud in its Italian operations.
Apparently PwC and Audit Engagement Partner Richard Hughes, who presumably was closely involved, each 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 financial year ended 31 March 2017 (FY17 Financial Statements) which were made following the identification of a fraud in its Italian operations in 2016.’
Hughes picked up a £42,000 fine personally, and PwC was ordered to pay £1.75 million. The claim seems to be that BT released financial statements for FY2017 and disclosed evidence of fraud in Italy, and PwC didn’t quite tick all the boxes when it came to the subsequent audit.
“The scale of the BT Italy fraud was such that in the FY17 Financial Statements BT disclosed adjustments of approximately £513m”, reads the announcement. “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.”
Or as Claudia Mortimore, Deputy Executive Counsel, puts it: “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.
“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”.
The FRC insists however that it does not think the 2017 Financial Statements were misstated, that the total sum of the BT Italy adjustments was wrong, or that ‘the breaches were intentional, dishonest or reckless.’ The fines were also apparently cut by 30%, ‘reflecting the stage at which the admissions were made’.