Deloitte has been fined a record £15m by the accounting regulator for “serious and serial failures” in its audit of former FTSE 100 software firm Autonomy.
The Big Four firm was also ordered to pay more than £5.6m to cover the costs of the investigation by the Financial Reporting Council (FRC).
Deloitte contested the allegations but a tribunal found that the firm failed to act with integrity and objectivity in its work between 2009 and 2011.
The fine dwarfs the previous record sanction imposed on an auditor. PwC was ordered to pay £10m for its work as auditor of collapsed retailer BHS but this was discounted to £6.5m for early settlement.
Two of Deloitte’s former partners, Richard Knights and Nigel Mercer, were also reprimanded and sanctioned.
Mr Knights has been fined £500,000 and barred from being a member of the Institute of Chartered Accountants for England and Wales for five years. Mr Mercer was fined £250,000 and given a severe reprimand.
It is the latest blow to the reputation of audit firms, which have been criticised for failing to raise red flags at companies like NMC Health, Patisserie Valerie and Wirecard, which have been engulfed in accounting scandals.
The Big Four audit firms have been asked by the FRC to produce plans by next month for how they will ringfence their audit operations from the rest of their businesses as part of a push to boost audit quality.
Autonomy, founded by Mike Lynch, was bought for $11bn (£8.3bn) by Hewlett Packard in 2011.
HP wrote off almost its entire value a year later and fired Mr Lynch amid accusations of fraud against Autonomy.
Mr Lynch faces possible extradition to the US on criminal charges and is awaiting judgment from the High Court in London in a £3.8bn civil suit.
Elizabeth Barrett, executive counsel, said the punishment reflected the gravity of the failings.
“The identified failures to act with integrity, objectivity, scepticism and professional competence go to the heart of audit," she said.
"After lengthy, fully contested proceedings, the Tribunal concluded that the audit work fell significantly short of the standards expected of an audit firm and its partners.”
A Deloitte spokesman said the firm regretted the ruling and added: “Our audit practices and processes have evolved significantly since this work was performed over a decade ago, and we continue to transform our audit by investing in firm-wide controls, technology and processes.”