The FRC will probe the accountancy giant’s oversight of Rolls-Royce’s financial statements covering four years.
It follows Rolls-Royce’s settlement of £671 million ($800 million) with the Serious Fraud Office (SFO) in January over corruption allegations.
KPMG said it was co-operating and was “confident in the quality” of its work.
In a statement, the accountancy watchdog said: “The FRC has commenced an investigation under the Audit Enforcement Procedure into the conduct of KPMG Audit Plc, in relation to the audit of the financial statements of Rolls-Royce Group plc for the year ended December 31, 2010, and of Rolls-Royce Holdings plc for the years ended 31 December 2011 to December 31, 2013.
“The decision to investigate follows the SFO announcement on January 17, 2017, of a Deferred Prosecution Agreement between the SFO and Rolls-Royce which relates to offences including conspiracy to corrupt and a failure to prevent bribery.”
The agreements relate to bribery and corruption scandals involving intermediaries in overseas markets such as Indonesia and China.
Rolls-Royce first passed information to the SFO in 2012 after facing “allegations of malpractice” in the two countries, after which the fraud squad launched a formal investigation.
The aero-engine maker said at the time that its own investigations had found “matters of concern” in additional overseas markets.
KPMG, one of the world’s largest accountancy firms, said: “It is important that regulators acting in the public interest should review high profile issues. We will co-operate fully with the FRC’s investigation, which follows the SFO’s investigations into Rolls-Royce.
“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 company has audited Rolls-Royce for 26 years, but is due to replaced in 2018 by PwC.
Rolls-Royce apologized “unreservedly” after the SFO settlement.
The SFO revealed 12 counts of conspiracy to corrupt or failure to prevent bribery in seven countries – Indonesia, China, Russia, Thailand, India, Nigeria and Malaysia.
Often described as “a jewel in the UK’s industrial crown”, Rolls-Royce makes engines for military and civil planes, as well as for trains, ships, nuclear submarines and power stations.
However, in addition to the corruption claims, Rolls-Royce has been hit by a string of profit warnings that sparked a tumble in the share price in the past couple of years.
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