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The UK accounting regulator is weighing whether to formally investigate PwC’s auditing of WHSmith, whose chief executive resigned this week over accounting errors in the retailer’s US business.

WHSmith, which has been audited by PwC since 2015, said on Wednesday that an independent review by Deloitte had found that the company’s revenues had been overstated and that the errors had been made over several years.

After WHSmith first announced in August that it had discovered accounting errors in its US business, PwC flagged the retailer’s statement to the FRC as part of its standard practice, said people familiar with the matter.

The regulator routinely reviews situations where companies reveal problems with their accounts to determine whether to open a formal investigation. While the FRC has not decided whether to open a formal probe into PwC’s work at WHSmith, the situation is the latest to bring scrutiny to the Big Four accounting firm’s audits.

PwC has been in the regulator’s crosshairs for its audits of companies including Sanjeev Gupta’s Wyelands Bank and London Capital & Finance, which a court ruled was a Ponzi scheme. PwC also audited Tesco in the run-up to an accounting scandal that engulfed the supermarket group.

The FRC has the power to fine companies and even ban individual auditors when they fail to meet industry standards but generally gives discounts for co-operation and early engagement.

PwC and the FRC declined to comment.

PwC signed off on WHSmith’s accounts for the three years where the retailer has subsequently disclosed an overstatement of profits through booking US supplier income too early. The errors went undetected until a member of WHSmith’s finance team came forward in mid-August, the Financial Times has previously reported.

WHSmith’s disclosure of accounting errors has wiped nearly £600mn off its market capitalisation. The episode has already claimed the retailer’s group chief executive, Carl Cowling, who stepped down on Wednesday as the London-listed company revealed the top-level findings of an independent review, led by PwC’s rival Deloitte.

This blamed “a backdrop of a target-driven performance culture” in WHSmith’s North America business, which had “a limited level of group oversight of the finance processes” in the division, the retailer told the market.

Heading the US business over the relevant period was Toby Keir, who was promoted in 2021 after 19 years at WHSmith to run its Marshall Retail Group unit. Keir left the company earlier this year for family reasons, the people added.

He ran the US division out of its headquarters in Las Vegas, whereas the rest of the business — including its other global operations — reported to Cowling at WHSmith’s headquarters in Swindon, Wiltshire. Deloitte gave the rest of WHSmith’s business a clean bill of health. The group has about 1,300 stores globally located in airports, train stations and hospitals.

Keir did not respond to requests for comment.

The retailer’s entire US finance team, which has been led by Kevin Gotthard since 2022, is being replaced, a person close to the company said. The group CFO, Max Izzard, only joined the company in late 2024.

WHSmith declined to comment. Gotthard did not respond to a request to comment via LinkedIn.

The accounting issues centred around the way WHSmith recognised payments from suppliers when they ran promotions. Typically such income is recorded gradually over time to align with when the related products are sold. Deloitte found that WHSmith instead recorded the income when deals were agreed.

The move to book supplier income earlier than cash had been received gave a flattering impression that its US profits were higher than they were, and meant senior managers were able to financially benefit by hitting bonus performance targets, according to people familiar with the company.

The errors would result in a larger-than-expected hit to the retailer’s profits, Deloitte concluded. The travel retailer said it expected to have to restate full-year earnings for 2023 and 2024, and it further cut forecasts for trading profit in its US business to £5mn-£15mn for 2025, down from a reduced £25mn guidance set in August.