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UK and US watchdogs investigating PwC over BT Group audit

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Just days after Britain’s accounting regulator, the Financial Reporting Council (FRC), said it would investigate PwC audits of telecoms group BT’s Italian business, the U.S. accounting watchdog announced a similar investigation.

BT lost a fifth of its market value in January after revealing a £530 million black hole in BT Italia’s accounts as a result of “improper accounting practices and a complex set of improper sales, purchase, factoring and leasing transactions”.

In April, the U.S. Public Company Accounting Oversight Board (PCAOB) asked Italian market watchdog Consob to send it documentation regarding the audits carried out by PwC on BT in the period 2014-2017, according to a source quoted by Reuters.

Consob provided the data after getting the go-ahead from the Milan prosecutors office which is carrying out a criminal probe into alleged false accounting and embezzlement.

BT filed a criminal complaint in Italy in April accusing several former executives and other staff of unlawful conduct.

Current and former staff told Reuters efforts to hide the Italian unit’s performance had gone on since at least 2013.

A spokeswoman for PCAOB, which has the powers to fine or bar accounting firms or their individual associates, said the regulator did not confirm or comment on inspections as required by the Sarbanes-Oxley Act.

Under the act the PCAOB is required to supervise and inspect all accounting firms that regularly audit companies whose securities trade in the United States.

Consob declined to comment, but a source close to the watchdog said the “regulator was giving its attention to the PwC issue”.

Reuters could not immediately confirm whether the FRC and the PCAOB were collaborating on the PwC issue, although a spokesman for the FRC said the British watchdog maintained close contact with its counterparts in other countries to improve audit quality.

Since the scandal erupted, various BT shareholders in the United States have launched class action cases, accusing the telecoms group of not informing the market and shareholders soon enough of the financial irregularities at its Italian unit.

In June BT appointed KPMG as its new auditor, terminating a relationship with PwC that began in 1984.

In a response to the PCAOB announcement, PwC said in an emailed statement it was not the company’s policy to comment on client issues.

In a response to the FRC’s investigation, PwC commented: “We will continue to co-operate fully with the FRC in its enquiries. The regulator has a duty to investigate where they believe there is a public interest, in order to give confidence to the financial markets.

“Audit quality is of paramount importance to the firm. The FRC’s annual reviews of our audit work, policies and procedures show a continued trend of improvement in our work and we use the FRC’s insights, together with our own reviews, to continuously improve how we deliver high quality audits.”

http://www.reuters.com/article/us-bt-italy-pwc-idUSKBN19Q1Q8