BT has dropped its auditor PwC after using the firm for 33 years amid a scandal over profits.
The company had intended to go out to tender for the auditing contract by 2019, having not done so since 1984, but brought the process forward after profits were overstated by about £530m.
PwC had held the contract without the need to re-tender since the telecom firm was first listed on the London Stock Exchange in 1984. KPMG will take over as auditor after PwC has completed the accounts for 2017-18, subject to shareholder approval.
The overstatement in BT’s profits was caused by long-running accounting errors and improper practice within BT’s Italian business. Initially BT said it was writing down £145m, but re-evaluated the figure after KPMG conducted an independent review.
Brought to light by a whistle-blower in the summer of 2016, after an initial investigation BT announced in October that accounting errors were causing it to write down £145m from its profits. However, in January BT announced the independent review by KPMG found “the extent and complexity of inappropriate behaviour [was] far greater than previously identified”.
In its 2017 annual report, BT said it found a complex set of improper sales, purchases, and leases in its Italian business. The investigation also found that controls within the business had been circumvented or overridden and that none of this was identified by its monitoring controls, “thereby resulting in the misstatement of results going undetected for a number of years”.
A number of senior executives were suspended as a result of the scandal, and a new CEO and CFO were installed in BT Italy, both from outside the business.
Transition planning between PwC and KPMG will start immediately “to ensure a smooth and effective migration”, BT said.
The Financial Reporting Council’s governance code states that FTSE 350 companies should put audit contracts out to tender at least every 10 years.
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