FILE PHOTO: Offices of Deloitte are seen in London, Britain, September 25, 2017. REUTERS/Hannah McKay/File Photo

(Reuters) - UK's accounting watchdog said on Thursday it began an investigation into Deloitte LLP's audit of two annual financial statements of SIG Plc SHI.L and is focusing on the audit of cash and supplier rebates.

The Financial Reporting Council (FRC) said it was probing financial statements for the years ended Dec. 31, 2015 and 2016 at the distributor of specialist building products in Europe.

SIG said in February it was undergoing a review of its historic accounts after a whistleblowing allegation of potential irregularities that led to the suspension of some staff for overstating profits over several years.

SIG said then its forensic review had revealed an overstatement for the year ended Dec. 31, 2016 and a further overstatement of up to 400,000 pounds before 2016. It added it was working with Deloitte to ensure correct accounting.

On Jan. 9, it first disclosed an overstatement of cash of about 20 million pounds at the end of December 2016 and about 27 million pounds as of the end of June 2017.

The FRC said on Thursday it delegated the investigation to the Institute of Chartered Accountants in England and Wales, which is Deloitte’s recognized supervisory body.

SIG, which supplies insulation and roofing products, has been trying to strengthen its balance sheet by selling assets and reviewing costs, as it battles to recover from weak trading in its UK insulation, interiors and offsite construction businesses.