The settlement applies to claims from both Tyco investors, who had filed a class-action lawsuit against the accounting firm in federal court in New Hampshire, and Tyco itself. The agreement was disclosed Friday by PwC, Tyco and the class-action investors.

Tyco's involvement in the PwC deal followed on its agreement in May to settle for $2.98 billion claims brought against it by the same class-action plaintiffs -- removing a cloud of liability that shadowed the conglomerate as it split into three publicly traded companies. As part of that agreement, Tyco allowed investors to pursue its own claims against PricewaterhouseCoopers, while Tyco would pursue claims on behalf of shareholders against former executives, including former Chief Executive L. Dennis Kozlowski.

PwC said in a statement that while it was prepared to defend itself against the claims in the case, "the cost of that defense and the size of the securities class action made settlement the sensible choice for the firm."

Attorneys for Tyco investors said the settlement marked a victory for shareholders. The $225 million payout "sends a message to accounting firms" and will act as a "deterrent to future situations like this," according to Jay Eisenhofer of Grant & Eisenhofer PA, who represented investors in the case. Tyco declined to comment beyond saying that the agreement had been filed.

The PwC settlement ranks among the top 10 legal payouts made by accounting firms related to work on behalf of one company. Ernst & Young LLP's $335 million settlement in 1999 related to work for Cendant Corp. remains the biggest-ever payout by an auditor.

As a percentage of the overall settlement reached by the company and other parties -- an important metric looked at by accounting firms -- the PwC deal represented a payout on its end of about 7% of the total. That is generally in line with payouts by accounting firms, which tend to range from 5% to 15% of total payouts.

While the Tyco case was one of several corporate scandals that rocked markets earlier this decade, it is somewhat unusual in that the malfeasance revolved around compensation issues involving top executives. That contrasted with the kind of bankruptcy-inducing fraud seen in many other scandals such as those at Enron Corp. and WorldCom Inc. In June of 2005, a jury convicted Mr. Kozlowski, and Mark Swartz, Tyco's former chief financial officer, of grand larceny, conspiracy and securities fraud. Both are serving prison sentences in New York.

While PwC stood by its work, the firm's position was potentially undermined when the Securities and Exchange Commission in 2003 barred Richard P. Scalzo, the firm's lead partner on Tyco's audits from 1997 to 2001, from audits of publicly listed companies. The SEC didn't accuse him of deliberately covering up faulty accounting at Tyco, but said he was "reckless" for not heeding warning signs regarding the integrity of the company's management. Mr. Scalzo didn't admit or deny wrongdoing.

Although the PwC settlement with Tyco will have to be approved by class-action investors, and some could drop out to pursue claims individually, the deal mostly brings to a close one of the biggest legal issues for PwC. Other high-profile cases the firm has outstanding are suits related to its work for insurance titan American International Group Inc. and computer maker Dell Inc.

Write to David Reilly at [email protected] and Jennifer Levitz at [email protected]