LONDON (ShareCast) - (Sharecast News) - PricewaterhouseCoopers and one of its partners have been issued sanctions worth an initial £2.5m, it was announced on Monday, for the audit of BT Group's 2017 financial statements.
The Financial Reporting Council said PwC had been handed a sanction of £2.5m, adjusted for admissions and early disposal to £1.75m.

Audit engagement partner Richard Hughes, meanwhile, was sanctioned £60,000, also adjusted for admissions and early disposal to £42,000.

Both PwC and Hughes were issued non-financial sanctions of a "severe reprimand", and a declaration that the audit did not satisfy requirements.

The FRC said PwC and Hughes both admitted breaches of the requirements in relation to the audit of adjustments disclosed by BT in its statements for the financial year ended 31 March 2017, which were made following the identification of a fraud in its Italian operations in 2016.

It said the scale of the BT Italy fraud was such that in the 2017 statements, BT disclosed adjustments of about £513m.

Those adjustments were made up of corrections of prior period errors of £268m, and changes in accounting estimates of £245m.

The FRC said the prior period errors were corrected by restating the prior period comparatives in the 2017 financial statements.

One element of the changes in accounting estimates was the receivables balance, which comprised two adjustments totalling £72m.

The respondents did not approach the audit of BT's treatment of the debt adjustments with the "necessary professional scepticism", the FRC said, adding that they failed to adequately document their audit work across the entirety of the BT Italy adjustments.

"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," said the FRC's deputy executive counsel Claudia Mortimore.

"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."

Reporting by Josh White at Sharecast.com.

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