The Financial Reporting Council (FRC) has said it will be examining how the big four firm complied with ethical standards relating to providing non-audit services while it was auditing the retailer.
The periods concerned are the years ended 26 January 2013 and 25 January 2014.
The FRC has noted that no employees of Ted Baker are subject to the investigation.
A KPMG spokesperson said:
We have always sought to ensure that the non-audit services we provide to audit clients are consistent with both the letter and the spirit of prevailing requirements. However, we recognise that the application of principles requires the exercise of professional judgement and, in this instance, the FRC's view may differ from our own.
We will of course co-operate fully with the FRC's investigation.
The FRC's ethical standards require firms to take certain safeguards to ensure that their objectivity and independence of audit clients is not affected when providing non-audit services.
The FRC's recently released Audit Quality Inspection report showed that audit quality at KPMG had inched down slightly during 2015-16. The number of audits reviewed at the firm which were identified as requiring significant improvements came in at two, up from just one the year before, while the number where improvements were required had increased from four to six.