The Financial Reporting Council (FRC) had already started a probe into audits which took place between March 2017 and March 2018 but said it will now investigate the accounts for the 2019 and 2020 financial years.
It said the decision to broaden the investigation was made by the FRC's conduct committee last month.
The move comes after Babcock announced a review into contract profitability and its balance sheet last year.
In April, the company said it would cut around 1,000 jobs and sell off parts of its business after revealing mammoth writedowns of £1.7 billion.
The group includes the Defence Support Group operation at MoD Donnington in Telford and the former Macneillie specialist vehicle conversions business at Aldridge, now renamed Babcock Vehicle Engineering.
In a statement, the FRC said: "The investigation will be conducted by the FRC's enforcement division under the Audit Enforcement Procedure.
"The FRC has an ongoing investigation into aspects of the statutory audits by PwC of the consolidated financial statements of Babcock for the years ended March 31, 2017, and March 31, 2018.
"That investigation followed the outcome of an audit quality review."
PwC said it will fully cooperate with the FRC's inquiries and stressed the paramount importance of audit quality.
It added: "The FRC's annual reviews of our audit work, policies and procedures show a continued trend of improvement in our work and we use their insights, together with our own reviews, to continuously improve how we deliver high quality audits."
Babcock, which saw shares rise in early trading yesterday, declined to comment.