The investigation, being conducted under new powers designed to speed up disciplinary procedures in the profession, has been delayed because of legal actions until four years after problems with the audit came to light. The inquiry, which could lead to expulsion, fines or reprimands for those involved, is not expected to be completed for several months.
The Joint Disciplinary Scheme - which acts on behalf of the Institute of Chartered Accountants in England and Wales, the Institute of Chartered Accountants of Scotland and the Chartered Association of Certified Accountants - has referred the case to Michael Chance, its executive counsel. He will decide if the firm should go before a tribunal to answer charges connected to its professional and business conduct, efficiency and competence during the audit.
The investigation stems from the discovery in 1989 of a pounds 215m fraud at International Signal. Last year, James Guerin, former chairman of ISC, was jailed for 15 years for his part in the fraud.
Peat Marwick was ISC's auditor and also produced a 'due diligence' report on the US company before its acquisition by Ferranti. In August 1991 the firm agreed to pay Ferranti pounds 40m in 'full and final settlement' of the resulting proceedings. However, Jim Butler, senior partner, insisted at the time that the payment had only been made to avoid protracted litigation. It was not an admission of liability for negligence. Last night the firm would only say that it would be co-operating with the inquiry.
The end of the litigation freed the Institute of Chartered Accountants to begin inquiries. The results of these led to the decision to refer the case to the scheme, where the investigation will be carried out by a team of investigating accountants under the supervision of Mr Chance, a former deputy director of the Serious Fraud Office.
This is only the second investigation to be conducted under the new procedure. Instead of a committee of inquiry gathering all the evidence before hearing it, the executive counsel acts as investigator with a separate tribunal acting as the court. The counsel may also negotiate with firms in order to avoid delays by concentrating on the key issues.
The first investigation under the new system relates to the conduct of accountants in the events surrounding the collapse of the Maxwell empire. It is understood to be still some way from completion.
The need for change has been demonstrated by the Barlow Clowes investigation, which has so far taken three years, at a cost of more than pounds 3m. It is expected to be completed later this year.