The probe relates to the FTSE 250 retailer’s accounts for the financial year ending 2024. WHSmith, which operates around 1,300 stores globally in airports, train stations and hospitals, shocked the market last year when it cut forecasts for its North American division, citing the way it had recognised payments from suppliers running promotions. Some payments were recognised too early, artificially inflating financial performance and enabling senior managers to hit performance targets.

PwC, which has audited WHSmith since 2015, signed off accounts covering the years in which the overstatements occurred. The errors went undetected until a member of WHSmith’s finance team came forward. PwC flagged the accounting errors only after the company disclosed the issue last August.

An independent review by Deloitte found that WHSmith had overstated revenues over several years, forcing chief executive Carl Cowling to step down. The review identified a “target-driven performance culture” in the North American business, weaknesses in the finance team’s composition, and limited group oversight of US finance procedures. In December, the Financial Conduct Authority launched its own investigation into potential breaches of UK listing and transparency rules.

Following Cowling’s departure, WHSmith installed former Balfour Beatty chief Leo Quinn as executive chair to rebuild investor trust. PwC said it would fully co-operate with the FRC, adding that delivering high-quality audits was fundamental to the firm.

The FRC has the power to fine companies and ban individual auditors who fail to meet industry standards. It is also investigating PwC’s work for Digital 9 Infrastructure and Babcock.

Shares in WHSmith, which sold its UK high street business last year to focus on travel retail, have more than halved over the past year, giving a market capitalisation of £622 million. The group suspended its dividend this year as it seeks to reduce debt, and is scheduled to announce a trading update on Wednesday.