The big four accountancy firm KPMG is inching towards a financial settlement with regulators over its auditing of Carillion, the doomed construction group, in the years before its collapse.
Sky News has learnt that KPMG has responded to the initial investigation report (IIR) handed to it by the Financial Reporting Council (FRC) more than six months ago.
The firm's response is significant because it marks another staging post towards eventual sanctions over its work on the books of Carillion, which became insolvent in 2018 carrying more than £5bn of debt.
A final settlement is still likely to be several months away.
The FRC is expected to impose a record fine on KPMG for failings related to the Carillion audit.
That would mean it exceeding the £15m penalty that Deloitte was hit with last year for its work on Autonomy, the software company whose takeover ultimately sparked a transatlantic extradition battle.
Industry sources anticipate that the FRC could ultimately fine KPMG around £25m over the Carillion scandal, which has been widely cited as one of the catalysts for proposals published on Thursday to overhaul Britain's audit and corporate governance frameworks.
A KPMG UK spokesperson said: "We are co-operating fully with the FRC's investigation. We have and will continue to respond appropriately to the Initial Investigation Report."
A separate IIR produced by the watchdog on KPMG's audit of Carillion in 2013 was delivered to the accountancy firm last month.
The FRC declined to comment on Thursday.