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BT to bring forward auditor review in wake of Italian scandal

January 26, 2017

by: Nic Fildes[1], Telecoms Correspondent BT is to bring forward a review of its auditors in the wake of a damaging accounting scandal in Italy that will end a relationship with PwC that dates back more than 30 years. The telecoms company was due to tender for a new audit partner in 2019 with a view to switching from PwC, according to people familiar with the situation.

However, BT will now accelerate that following the accounting scandal that has engulfed BT Italia and triggered a ?530m write-off[2]. BT first became aware of issues at its Italian unit, part of its Global Services division, last summer when a whistleblower contacted senior management in London. It initially pencilled in a ?145m cost of inappropriate accounting but an in-depth investigation by KPMG uncovered a complex accounting scandal involving several people.

BT revealed the higher loss on Tuesday alongside a warning about government spending in Britain, which wiped a fifth off its market value. The emergence of the worsening crisis in its Italian business has triggered a number of lawsuits against the company, notably one led by law firm Pomerantz that has filed a potential class action in New York against BT and its executives. The law firm led a class action lawsuit against BP over the 2010 oil spill in the Gulf of Mexico.

The scale of the accounting scandal at BT Italia has caught investors by surprise. The managers of the Italian unit have been accused by BT of artificially depressing its cost base to appear more profitable than it actually was. This was achieved through various schemes, including a process where loans were taken to settle creditor bills against receivables but those loans were not booked through the balance sheet.

Podcast

An accounting scandal at the British telecoms group’s Italian unit is raising questions about the company’s Global Services strategy.

Daniel Thomas discusses the Italian debacle with the FT’s Nic Fildes. Thursday, 26 January, 2017

strengthen its audit functions[3]. European Union regulations introduced last year require companies to put the job of auditing their accounts out to tender once every decade, and change their auditor at least every 20 years.

BT had reserved the right to kick off an early tender for its audit business stating in its annual report that “service issues” could be a trigger for a quicker switch. Both BT and PwC declined to comment. BT will face further scrutiny when it reports third-quarter results on Friday.

The stock traded flat at 302.5p on Thursday.

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References

  1. ^ Nic Fildes (www.ft.com)
  2. ^ ?530m write-off (www.ft.com)
  3. ^ strengthen its audit functions (www.ft.com)

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