The UK Financial Reporting Council (FRC) Monday fined accounting and auditing firm PricewaterhouseCoopers (PwC) £1.75 million over their Fiscal Year 2017 (FY17) audit of telecom company BT Group after it was discovered that the audit failed to uncover evidence of fraud.

The FRC reported that BT group’s financial statements for FY17 had to be adjusted by £513 million because of fraud, which was discovered following investigations into BT Group’s Italian operations in 2016.

PwC performed BT Group’s FY17 statutory audit, an audit that is required by law. Richard Hughes was the audit engagement partner and Senior Statutory Auditor for the audit. Both PwC and Hughes were required to act in accordance with the International Standards on Auditing when carrying out the audit.

The FRC in their final settlement decision found that a heightened professional skepticism was needed when dealing with BT Italy’s adjustments, corrections of prior-period errors, and changes in accounting estimates. The FRC found that such a level of professional skepticism had not been met. 

It was also found that neither party obtained sufficient appropriate audit evidence concerning debt adjustments. They failed to determine whether the changes in the accounting estimates were appropriate for the debt adjustments. Lastly, the parties did not prepare audit documentation which would allow an experienced auditor to understand the nature, timing, and extent of the audit procedure concerning the split between corrections of prior-period errors and changes in estimates.

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

Claudia Mortimore, Deputy Executive Counsel for the FRC said that “[t]he sanctions imposed in this case, where certain elements of the adjustments following a fraud were not subject to the required level of professional [skepticism,] underscore this message and will serve as a timely reminder to the profession.”

Both parties have 28 days after the date of this Final Settlement Decision Notice to pay the financial sanctions.