Accounting watchdog investigates PwC's audits of BT after Italian scandal

The accounting watchdog has launched an investigation into the auditing of BT's accounts by PwC after the telecoms group earlier this year identified a £530m black hole in its Italian business.

The Financial Reporting Council (FRC) said that, following initial enquiries, it was looking into audits carried out by the accounting giant of BT's financial statements over three years.

Its investigation covers the years ending March 2015 to March 2017.

The FRC said: "The decision to investigate follows announcements by BT in relation to accounting issues in its Italian operations."

The body has powers to issue fines or bans to those found to be in serious breach of its rules.

BT first revealed details of accounting errors in its Italian business last year but increased its estimate of the impact of the scandal to £530m in January this year, sending shares plunging.

Its own review found improper practices that had resulted in the overstatement of earnings on its Italian businesses over a number of years.

The cost of the scandal helped annual profits fall 19% to £2.4bn for the year to the end of March and saw chief executive Gavin Patterson miss out on millions in bonuses.

BT acknowledged it had suffered a "challenging" year as it published results last month, also disclosing at the time that it was to cut 4,000 jobs.

The telecoms group has also this year been hit by a £42m fine and £300m compensation bill after regulators uncovered failings at its Openreach division.

PwC said it would continue to cooperate fully with the FRC, adding: "The regulator has a duty to investigate where they believe there is a public interest."

BT said it noted the announcement but that it would be inappropriate to comment further.