Britain's accountancy regulator will today launch an investigation into Ernst & Young's role as auditor of the European arm of Lehman Brothers.

The investigation follows an allegation in March by a US court-appointed examiner that E&Y – one of the world's "big four" accountancy firms – approved accountancy tactics that allowed the failed investment bank to hide $50bn (£33.7bn) of debt off its books.

"The accountancy and actuarial discipline board (AADB) has begun an investigation under its accountancy scheme into the conduct of E&Y as auditors to Lehman Brothers International Europe," said the Financial Reporting Council (FRC).

One industry expert described the inquiry as the "tip of the iceberg" and said it opened up the prospect of a flood of legal claims against the firm.

The report by US court examiner Anton Valukas found that a sales programme known as "Repo 105", which involved the artificial sale and buy-back of deals, was used to make it look as though the company had not borrowed as much money as it had. Valukas described the trick as "window dressing", an "accounting gimmick" and a "drug".