From the error it looks For the “Client Authentication Failed” error, I would check:
The IQService service account username/password configured in IIQ matches exactly what IQService is running with
Password was updated on the server but not updated in IIQ
Regarding version compatibility:
While IIQ may work temporarily with an older IQService, it is not recommended. Best practice is to run a matching (or supported) IQService version for IIQ 8.5P1, as API and security changes can cause exactly these types of errors.