The Financial Reporting Council (FRC) has launched an investigation into whether KPMG Audit was independent when it conducted the audits of Pendragon financial results for the years ended 31 December 2010 and 2011.
The FRC said its decision to initiate an investigation was taken following consultation with the Institute of Chartered Accountants in England and Wales (ICAEW).
The FRC is responsible for promoting high quality corporate governance and sets the UK Corporate Governance and Stewardship Codes as well as UK standards for accounting, auditing and actuarial work.
The next stage in the process will see a decision from the FRC on whether to bring disciplinary proceedings against KPMG which could then lead to a tribunal.
Reports suggest it relates to a period when Mel Eggleton left his role at KPMG's Birmingham office in 2010 to join Pendragon's audit committee as a non-executive director later that year.
KPMG said in a statement that it believed its independence as auditor for these years was maintained.