The telecoms giant said, following an independent review of the business by KPMG, the “extent and complexity of inappropriate behaviour in the Italian business were far greater than previously identified”.
An investigation has revealed improper accounting practices and a “complex set of improper sales, purchase, factoring and leasing transactions”, BT added.
The net result is there has been an overstatement of earnings at BT’s Italian business over a number of years, leading to the upwards revision in the value of the write down.
BT chief executive Gavin Patterson said: “We are deeply disappointed with the improper practices which we have found in our Italian business.
“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.”
The group first revealed the accounting errors in October last year and on Tuesday said the investigation is now “substantially complete”, adding it is attempting to establish how the £530 million hit should be reflected in its financial statements for current and previous periods.
However, the firm said it expects the fiasco to result in a reduction in its third quarter adjusted revenue and adjusted earnings of around £120 million.
For the financial year as a whole, BT expects adjusted revenue to decrease by around £200 million and adjusted earnings by £175 million. It expects to take a similar hit next year.
It added the outlook for UK public sector and international corporate markets has “deteriorated”.
For business and public sector, it is pencilling in a double-digit year-on-year percentage decline in fourth quarter underlying earnings.
The group said in a statement: “The improper behaviour in our Italian business is an extremely serious matter, and we have taken immediate steps to strengthen the financial processes and controls in that business.
“We suspended a number of BT Italy’s senior management team who have now left the business.
“We have also appointed a new chief executive of BT Italy who will take charge on 1 February 2017.
“He will review the Italian management team and will work with BT Group Ethics and Compliance to improve the governance, compliance and financial safeguards in our Italian business.”
The Italian business accounts for around 1% of its total earnings.
BT is also conducting a broader review of financial processes, systems and controls across the group and its remuneration committee will “consider the wider implications” of the BT Italy investigation.
The company will issue a third quarter trading update on Friday.
Shares in BT plunged by 16% in morning trading as investors digested the news.