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Accounting firm PwC has been fined a record £5m and severely reprimanded over its auditing of collapsed property services group Connaught.

Social housing specialist Connaught, which employed 10,000 people, had £220m of debt when it went bust in 2010.

The Financial Reporting Council (FRC), which imposed the fine, spent five years investigating PwC's audit of Connaught in 2009.

It found evidence of misconduct by PwC and retired partner Stephen Harrison.

Mr Harrison was fined £150,000 and also reprimanded.

PwC was ordered to pay the FRC's legal costs and make an interim payment of £1.5m.

The FRC said the auditors had committed misconduct in three areas: mobilisation costs, long-term contracts and intangible assets.

PwC said it was sorry that it had fallen short of professional standards, adding: "Since 2010 when the case began, we've worked hard to improve our procedures and processes."

Exeter-based Connaught was a FTSE 250 company. At one stage, it had a market value of more than £500m.

It ran into serious difficulties after it emerged that a series of contracts would be loss-making.

Despite the management's efforts to put together a rescue plan, its creditors decided instead to put the business into administration under UK insolvency procedures.