The Financial Reporting Council has launched an investigation into KPMG in connection with the accounting group’s audit of the financial statements of Rolls-Royce Group.

The investigative and disciplinary body said on Thursday it has begun an investigation in connection with the audit of statements for Rolls-Royce Group for the year to December 31, 2010 as well as those of Rolls-Royce Holdings for 2011 to 2013.

The FRC said the decision to investigate followed the deferred prosecution agreement between Rolls-Royce and the Serious Fraud Office in January, when the engineering group agreed to pay a total of £671m in fines to regulators in the UK, US and Brazil to settle wide-ranging allegations of corruption in Indonesia, Russia, China, Nigeria, Brazil and several other jurisdictions. This included a £497m fine from the SFO following its biggest ever inquiry.

KPMG, which is the UK auditor with the most listed company clients, said it would co-operate fully with the FRC’s investigation. “It is important that regulators acting in the public interest should review high profile issues,” it said. “We are confident in the quality of all the audit work we have completed for Rolls-Royce, including the 2010-2013 period the FRC is considering.”

The FRC is taking an increasingly tougher stance in policing accountancy firms, and earlier this year called on the government to furnish it with additional powers to discipline company directors over accounting misconduct. In March it called on UK auditors to improve their quality control after it found deficiencies in one-third of recently reviewed audits.

Shares in Rolls-Royce were down 0.6 per cent to 820p in early trading, while the FTSE 100 was up 0.5 per cent.

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