In January 2017, BT GROUP, PLC announced it would write down the value of BT-Italy by 530m after discovering years of ongoing accounting fraud. Subsequently, it restated its profits for the year ending 31st, March 2016. You are required to assess the fraud that occurred in BT Group, PLC in the context of the earnings management and corporate governance literature that we have discussed and address the following:

1) Discuss the details of the fraud and explain any relevant background, referring to relevant academic literature. (10 Marks)

2) What was the effect of the announcement on the 3-day cumulative abnormal returns of BT Group, PLC? Show the effect in tabular and graphical form, citing sources of data and explain how you measure abnormal returns. Interpret the announcement effect, referring to relevant academic literature. (20 Marks)

3) Discretionary accruals are frequently used to detect accounting fraud using accruals. Please explain this measure and calculate discretionary accruals in years 2000-2016 using the Modified Jones model (1995). Discuss any evidence of fraud from the data. You can obtain the needed data from Bloomberg or BTs annual reports found on the UKs Companies House at Find and update company information - GOV.UK (company-information.service.gov.uk). You must use the original and not restated data. (30 Marks)

4) Examine the governance structure of BT Group as stated in the 2016 annual report and discuss any weaknesses or strengths you find, including the board structure and remuneration structure, that could have led to the accounting fraud. Refer to the academic literature to support your discussion. (30 Marks)