Britain's accounting watchdog has launched a probe into the auditing of BT's accounts by PwC after the telecoms group revealed a £530m ($688m) black hole in its Italian business earlier this year.

The Financial Reporting Council (FRC) said it would investigate audits carried out by the accounting giant of BT's financial statements over three years, between 2015 and 2017.

The FRC said its "audit enforcement procedure" comes after "announcements by BT in relation to accounting issues in its Italian operations."

The body has power to hand out fines or bans those found to be in serious breach of its rules.

BT was forced to write down the value of its Italian unit in January after years of overstating profits.

The cost of the scandal helped annual profits slump by 19% to £2.4bn in May and saw chief executive Gavin Patterson pay cut by £4m to £1.3m. The group added it would axe 4,000 jobs as part of a major restructure.

PwC said it would continue to cooperate fully with the FRC. BT said last month it will replace PwC with rival accounting firm KPMG.