The US Securities & Exchange Commission (SEC) is widening its inquiry into alleged accountancy fraud at photocopying giant Xerox.

It has told the US practice of KPMG and at least six former and current KPMG and Xerox executives it may file civil charges against them, according to the Wall Street Journal newspaper.

The Washington Post reported that the SEC would file those civil charges on Thursday.

Xerox has already agreed to restate its earnings back to 1997 and it sacked KPMG as its auditor last autumn.

Observers believe KPMG staff either knew about or were reckless in not knowing about the alleged fraud, but KPMG continues to stand by the work it did at Xerox.

Tough stance

Former Xerox chairman Paul Allaire, former chief financial officer Barry Romeril and KPMG partner Michael Conway have all been contacted prior to the formal filing of charges.

It will then be up to them to file a legal response, and a settlement may yet be reached.

The SEC may be using the Xerox case to make clear its tough stance on accountancy fraud in the wake of Enron, the collapse of which has shaken confidence in the figures reported by American companies.

Since the Enron collapse, its auditor, Andersen, has been criticised, and the reputation of the audit profession has been hit hard.

Howard Schiffman, a top financial lawyer in Washington, told the BBC's World Business Report that the SEC was taking more severe action than they would have before the Enron scandal.