Grant Thornton investigated over accounts of failed government outsourcer Interserve

Watchdog probes firm as pressure on auditors ratchets up following string of high-profile failures

Accountancy firm Grant Thornton is to be investigated over its audit of government outsourcer Interserve, which went into administration last month.

The Financial Reporting Council (FRC), which regulates the audit industry, will probe Grant Thornton’s work on Interserve’s books between 2015 and 2017.

Scrutiny of accountants is ratcheting up after a series of high-profile failures that have seen companies declared insolvent shortly after their financial statements were signed off.

Interserve has millions of pounds’ worth of crucial government contracts, from providing school dinners to building hospitals, but was forced to call in the administrators after investors refused to back a rescue plan.

Creditors including RBS, HSBC and BNP Paribas took charge of the stricken outsourcer in March.

Interserve’s situation has drawn comparisons with Carillion, which collapsed in January last year, months after KPMG checked its books.

Interserve has avoided a full-scale collapse but its financial difficulties have again raised questions over the role of auditors.

Grant Thornton is also under FRC investigation over its audit of cake chain Patisserie Valerie after a £40m hole was discovered in its accounts.

Patisserie Valerie has said the problems resulted from fraud, which auditors are not required to specifically look for under current rules.

Earlier this month MPs on the Business, Energy and Industrial Strategy Committee called on the government to break up the Big Four accountancy firms – KPMG, PricewaterhouseCoopers, Deloitte and Ernst & Young – to improve the quality of audits

The committee told the competition watchdog to aim for a “full structural breakup” of the companies which audit almost all of the UK’s largest listed companies.

The Competition and Markets Authority is expected to release its final recommendations on reforming the audit market shortly. Its initial assessment recommended a functional split between accountants’ auditing and consultancy arms but the MPs recommendations go further.

Committee chair Rachel Reeves said: “For the big firms, audits seem too often to be the route to milking the cash-cow of consultancy business.”