The UK’s audit watchdog is to investigate Big Four audit firm KPMG for its work on the collapsed services and construction giant Carillion.

The Financial Reporting Council (FRC) announced this morning that it is to investigate audits of financial reports published by the company, which went into liquidation in January with £1.7bn of debt, casting uncertainty over 450 public sector service contracts.

Last week MPs on the work and pensions and business committees of the House of Commons launched their own probe of events at Carillion, including a look at the role of auditors.

The FRC’s investigation will examine audit work carried out over a period of more than three years, and will be undertaken by the regulator’s enforcement division.

A statement from the FRC said: “The Financial Reporting Council (FRC) has decided, following enquiries made since a profit warning in July 2017, to open an investigation under the Audit Enforcement Procedure in relation to KPMG’s audit of the financial statements of Carillion plc.

“The investigation will cover the years ended 31 December 2014, 2015 and 2016, and additional audit work carried out during 2017.”

The watchdog added: “Several areas of KPMG’s work will be examined including the audit of the company’s use and disclosure of the going concern basis of accounting, estimates and recognition of revenue on significant contracts, and accounting for pensions.”

The FRC also said it was looking into the work of individual accountants at Carillion and their work preparing the company’s financial statements. That examination takes place under the FRC’s Accountancy Scheme.

The FRC said it was “liaising closely with the Official Receiver, the Financial Conduct Authority, the Insolvency Service and The Pensions Regulator to ensure that there is a joined-up approach to the investigation of all matters arising from the collapse of Carillion.”