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Quarterly profits at BT have dived 37% after the firm reported an accounting scandal in its Italian division that cost it more than £500m.

In the profit before tax fell to £526m, although revenues climbed to £6.1bn.

On Tuesday, BT was forced to write down the value of its Italian unit after years of overstating profits.

It has now confirmed that Corrado Sciolla, head of continental Europe, will step down over the affair.

"The good progress we're making across most of the business has unfortunately been overshadowed by the results of our investigation into our Italian operations and our outlook," said Gavin Patterson, BT's chief executive.

In the final three months of 2016, BT said it had seen record growth at EE, its market leading mobile unit, signing up 276,000 new customers for monthly contracts.

It also added 83,000 broadband customers while 260,000 switched to faster fibre connections.

But it faces a slowdown in work for the public sector and reiterated its warning of flat group sales and lower profits for 2016-17.

Improper accounting

Allegations of "inappropriate behaviour" at BT's Italian operation first emerged last summer before the company began conducting an investigation in October.

It found improper accounting practices and "a complex set of improper sales, purchase, factoring and leasing transactions".

Total adjustments relating to the investigation of its Italian business amount to £513m, BT said.

Mr Sciolla's departure follows that of a number of BT Italy's senior management team. The firm said it had also appointed a new chief executive of BT Italy who will take charge on 1 February.

BT shares have fallen 22% since news of the scandal broke on Tuesday.