KPMG has been accused of “appalling” audit work that allowed a US-listed Chinese biotechnology company to carry out a “brazen” $400 million accounting fraud, the Hong Kong High Court heard on Monday, reports the Financial Times. The liquidator of China Medical Technologies, which collapsed in 2012 and whose senior executives are wanted on fraud charges in the US, said the Big Four audit firm failed to ask “obvious” questions that would have “easily” exposed the fraud.
These included not questioning a large related-party transaction by the group in 2006, when it acquired a Chinese diagnostics business worth $155,000 for $176 million, according to the liquidator.
It is suing KPMG on the grounds that losses at China Medical “flowed from” its negligent audit work, which gave the company accounts a clean bill of health in 2007 and 2008, according to Monday’s hearing. It is asking for as much as $454 million to cover allegedly misappropriated cash and dividends that were paid out to shareholders while the company was operating under a negligent audit, plus interest of more than $376 million, according to a person close to the matter.