A retired PwC accountant is facing an investigation into his audit work in the lead-up to the collapse of a London-listed outsourcing business five years ago.

The Financial Reporting Council yesterday issued a rare formal complaint against Stephen Harrison, a former senior statutory auditor at PwC, as well as the accountancy firm over what the watchdog said was conduct that “fell significantly short” in relation to their work for Connaught.

As well as Mr Harrison and PwC, the council said that it would be pursuing actions against Stephen Hill, Connaught’s finance director, and David Wells, his deputy, over financial statements issued by the social housing maintenance group months before it went into administration.

Connaught went under owing more than £200 million to creditors, including Royal Bank of Scotland, after an internal review discovered a cash shortfall that followed months of speculation about the health of the FTSE 250 company. More than 1,000 staff lost their jobs after the collapse, which led to an investigation by the council’s accountancy and actuarial discipline board over claims that the company had employed aggressive techniques to disguise its true financial position.

Mr Harrison, who worked in the Bristol offices of PwC, retired from the firm two months before Connaught’s collapse. He had worked on the audit of its 2009 full-year accounts, which failed to spot the problems in the business.

“The complaint alleges that Stephen Harrison and PwC failed to act with competence and due care in relation to the audit of the financial statements for the group, Connaught Partnership and Connaught Compliance, and that their conduct fell significantly short of the standards reasonably to be expected of a member or member firm,” the council said. It added that its investigation was in relation to six-month figures for the period to the end of February 2010 that were prepared and approved by the two executives.

“The complaint alleges that Stephen Hill and David Wells breached the fundamental principle of integrity in relation to the accounting treatment of a short-term loan provided by a related party shortly before the half-year-end.”

Sanctions for breaking the council’s rules range from fines to lifetime bans from the accountancy profession.

In January, Diane Jarvis, the former chief financial officer of Healthcare Locums, was given a ten-year ban by the council over her role in inflating the company’s profits.

Ms Jarvis’s ban came days after Mark Woodbridge, the group accountant of Torex Retail, was barred for ten years over false accounting and a conspiracy to defraud at the failed software company.

Recent actions against accountants by the council come amid accusations that auditors have largely escaped proper scrutiny over their part in the financial crisis, when several lenders collapsed or required multibillion-pound bailouts despite being given clean bills of health in their annual accounts.