BT (BT)  cautioned Tuesday that writedowns in its Italian business linked to accounting irregularities will be much larger than expected. It also trimmed its earnings guidance for the current fiscal year.

The internal audit into BT's Italian unit was first announced in late October. The company estimated costs associated with the investigation at around £145 million ($180 million). BT, however, now says the probe "revealed that the extent and complexity of inappropriate behaviour in the Italian business were far greater than previously identified and have revealed improper accounting practices and a complex set of improper sales, purchase, factoring and leasing transactions" and could exceed £530 million ($661 million).

The impact is expected to hit third-quarter earnings by around £120 million and free cash flow by around £100 million, the company said, even though it expects the final numbers to be "broadly in line with market expectations."

"We are deeply disappointed with the improper practices which we have found in our Italian business," said CEO Gavin Patterson. "We have undertaken extensive investigations into that business and are committed to ensuring the highest standards across the whole of BT for the benefit of our customers, shareholders, employees and all other stakeholders."

BT also said that, owing to "pressures in the U.K. public sector and international corporate markets", it now expects flat revenue underlying revenue growth in the 2016/2017 fiscal year and adjusted EBIDTA of around £7.6 billion from a previous guidance of £7.9 billion.

Earnings for the 2017/2018 year would be "flat" compared to the previous, BT said, with normalized free-cash of between £3 billion and £3.2 billion, a figure that also falls shy of the company's previous forecast.  

BT shares closed at 382.18 pence each in London Monday, down 0.1% on the session. The shares have fallen 1.4% since the October 27 release against a 0.12% slip for the Stoxx Europe 600 Telecommunications Index.