The external auditor of BT has highlighted “material weaknesses” within the company’s financial reporting controls, in the latest upset to its accounting credibility.
In a letter to the telecoms firm KPMG noted that BT “did not maintain effective internal control over financial reporting as of 31 March, 2020 because of… material weaknesses related to general IT controls and risk assessments”.
The auditor subsequently expressed an “adverse opinion” of the firm’s internal control over financial reporting.
KPMG also highlighted various factors that might affect the group’s future performance, including the impacts of coronavirus, a disorderly Brexit, and “a complete ban on certain high-risk vendors”.
The letter was issued alongside BT’s annual company report, in which Nick Rose, a non-executive director for BT, admitted that weaknesses in the firm’s IT infrastructure created “a reasonable possibility that a material misstatement would not have been prevented or detected on a timely basis as at or during the year ended 31 March 2020”.
KPMG was appointed auditor of the British communications firm in July 2018 after it terminated its relationship with PwC following the discovery of a £500m fraud at BT’s Italian business.
PwC, which had audited the company’s accounts since privatisation in 1984, was dropped by BT in 2016 when it failed to spot a 10-year fraud at BT Italia, which subsequently wiped £530m off BT’s market value.
BT also said in 2018 that consultancy firm Willis Towers Watson had miscalculated pension liabilities by around £500m. In BT’s 2020 report Rose noted that the firm has made efforts to address weaknesses relating to “certain outsourced service organisations, including pension asset valuation services”.
A spokesman for BT told City A.M. that there were “no financial inaccuracies in BT’s accounts for this year or last”, and that KPMG’s statements related to a technical issue.
The spokesman added that the accounting issues highlighted by KPMG in BT’s latest report are unrelated to its Italian business, and instead involve American Sarbanes-Oxley accounting regulations.
BT had American depositary shares listed in New York, but it delisted from the US last year to in a bid to scale back reporting costs.
A report released by KPMG last September found that 26 per cent of companies in the technology, media and telecoms sector registered with the US Securities Exchange Commission had disclosed material weaknesses in their filings between 2014 and 2018.
BT, Britain’s largest telecoms group, includes infrastructure business Openreach, mobile network EE and broadcaster BT Sport.
The firm is currently undergoing a large-scale restructure involving 13,000 job cuts and the move of its headquarters outside central London in a bid to slash £1.5bn in costs.
BT last month fuelled investor interest when it reportedly started talks to sell a £20bn stake in Openreach, sending shares up nine per cent. It came week after the telco scrapped billions in dividend payments as the firm vows to invest £12bn in upgrading the UK’s broadband network with full-fibre connections.
KPMG declined to comment.