UK Edition
BT appoints KPMG as auditor as PwC is ousted after 33 years in wake of Italian scandal
BT has appointed KPMG as its new auditor to replace PwC in the wake of the fraud scandal in Italy that triggered a major profit warning earlier this year.
PwC has held the blue-chip account ever since BT was privatised 33 years ago.
KPMG was awarded the work yesterday, after coming out on top in a battle with EY. The contract was worth more than £15m to PwC last year, according to BT's annual report.
The last of the "Big Four" accountants, Deloitte, did not contest the contract because of potential conflict with lucrative technology consulting work it does for BT.
The company was due to change its auditor by 2020 at the latest, but moved the contract tender forward amid boardroom anger over PwC's failure to detect long-running complex fraud in BT's Italian unit.
The wrongdoing was instead uncovered by a whistleblower, with the full impact on BT's finances only clear after the board called in forensic accountants from KPMG.
They found that BT Italy had concocted inflated profits its over several years via corrupt arrangements with clients and financiers. BT took a £530m write-down as a result, and cut its cash flow forecasts for the year by £500m as it was forced to pay off hidden loans.
In January the scandal contributed to the biggest ever one-day fall in BT's share price, as the company's stock market value plunged by a fifth. A simultaneous warning over slow sales in its international corporate and UK public sector businesses compounded the shock.
BT sources said the board felt "very let down" by PwC over its failure to detect wrongdoing. The fraud was missed despite "full scope" auditing of BT Italy in 2015.
BT executives have also faced consequences. Luis Alvarez, the head of the sprawling Global Services division that includes BT Italy has left the company. There is no suggestion he knew anything about the fraud, which is under criminal investigation by Italian prosecutors.
Meanwhile Gavin Patterson, BT's chief executive, and Tony Chanmugam, its chief financial officer at the time of the fraud, have been forced to pay back £340,000 and £193,000 in bonuses respectively.
It was the second FTSE 100 scandal to involve PwC in two years. It also lost Tesco's auditing contract after more than three decades when it did not notice hundreds of millions of pounds of missing profits.
The Serious Fraud Office has charged former senior executives with fraud offences and the supermarket has agreed to pay a £129m penalty in lieu of a corporate prosecution. PwC this week escaped censure by the Financial Reporting Council over its work for Tesco. the regulator said there was "not a realistic prospect" the firm would be found guilty of misconduct.
BT announced its decision this morning and said KPMG will take over auditing its accounts at the end of the current financial year, subject to a vote at next year's shareholder meeting.
KPMG senior partner elect Bill Michael said the appointment was a "testament to our people and our commitment to audit quality".