Global audit giant PwC is being investigated by U.K. regulators over a scandal involving broadcaster BT's Italian division, which has been blighted by claims of "inappropriate management behavior" and "historic accounting errors."
The Financial Reporting Council (FRC) announced on Thursday that it would be investigating the audits by PricewaterhouseCoopers LLP (PwC) of BT's financial statements from 2015 to 2017. It added that the investigation related to the scandal of the telecommunication giant's Italian division, called BT Italia.
A PwC spokesman told CNBC in an email: "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," the spokesperson added.
The spokesman said that the FRC investigation did not mean there was an assumption of blame.
Some experts have compared the FRC's handling of the BT audit to investigations conducted by the U.K.'s Serious Fraud Office, a non-ministerial government department which investigates serious fraud cases in England and Wales.
Ben Rose, regulatory law expert at Hickman & Rose, said: "Since gaining its new powers the FRC has been compared by some to the SFO (Serious Fraud Office). Its investigation of KPMG over Rolls Royce announced earlier in the year, and now PwC in connection with BT, demonstrate its willingness to tackle the big four accountancy firms."
"This should act as a wakeup call to auditors and accountants alike," he added. "The FRC is stepping up as a major league investigator."
The FRC is partially funded by the U.K. government, and has the power to issue fines or bans to companies it deems to be found in serious breach of its rules. The investigation follows a scandal which saw BT's shares tank to their worst ever daily fall on Tuesday January 24 – a three-and-a-half year low, according to Reuters.
In March, BT's CEO told CNBC he was "extremely angry" about the BT Italia fraud debacle. "That type of fraud has no role to play in our business at all," he said.
"I'm extremely angry about it, very disappointed that a few individuals have tarnished the name of the company overall, and I'm determined to ensure that that sort of behavior does not exist anywhere in BT."
BT replaced PwC as its auditor in June, with the U.K. accounting firm KPMG.