September 30, 2022

UK Financial Reporting Council fines audit firm PwC over BT Group audit – JURIST

On Monday, the UK’s Financial Reporting Council (FRC) a fine accounting and auditing firm PricewaterhouseCoopers (PwC) £1.75million during their audit of the financial year 2017 (FY17) of telecommunications company BT Group after finding that the audit had failed to uncover evidence of fraud.

The FRC said BT Group’s financial statements for the financial year 2017 had to be adjusted by £513 million due to fraud, which was discovered following investigations into BT Group’s Italian operations in 2016.

PwC conducted the statutory audit of BT Group for the 2017 financial year, an audit required by law. Richard Hughes was the audit engagement partner and lead auditor for the audit. PwC and Hughes were required to act in accordance with International Standards on Auditing when performing the audit.

The FRC, in its final settlement decision, found that increased professional skepticism was needed when it came to BT Italy adjustments, corrections of errors from prior periods and changes in accounting estimates. The FRC found that such a level of professional skepticism had not been achieved.

It was also found that neither party had obtained sufficient appropriate audit evidence regarding the debt adjustments. They did not determine whether the changes in accounting estimates were appropriate for debt adjustments. Finally, the parties have not prepared audit documentation enabling an experienced auditor to understand the nature, timing and extent of the audit procedure concerning the allocation between corrections of errors of prior years and changes in estimates.

PwC received a financial penalty of £2,500,000, which was reduced to an amount payable of £1,750,000 due to admissions and early settlement. Mr Hughes received a financial penalty of £60,000, which was also reduced for the same reason to £42,000.

Claudia Mortimore, Deputy Executive Adviser of the FRC, said that “[t]The sanctions imposed in this case, where certain elements of the adjustments following fraud were not submitted to the required level of professionalism [skepticism,] highlight this message and serve as a timely reminder to the profession.

Both parties have 28 days from the date of this Notice of Final Settlement Determination to pay the financial penalties.