possibility of legal action, page-5

Yes you are correct to say it was not legally a subcontracting exercise. Each board of directors would have appointed their own auditors.

I think PKF would have to satisfy themselves that the auditor of the subsidiary was properly registered and that standards followed in the audit were acceptable.

My point was really that, provided the non Australian auditor was an acceptable auditor in that jurisdiction, then PKF would rely upon that in any defence to claims against it in Australia.

A consolidation is only a consolidation ie a consolidation of a number of entities, some audited by A and some audited by B. If the foreign subsidiaries have been audited by an acceptable firm then what can PKF do other than accept their certificate or carry out a separate audit themselves? Prudently they would fly to wherever and discuss matters with the foreign auditor, but at the end of the day it is the certificate of the foreign auditor which validates the subsidiary company's accounts, not that of PKF.

It would be difficult for PKF to say that they don't accept the foreign auditor's report - they should do that privately and early, in sufficient time for NBS to appoint another auditor of the subsidiary. but then very likely the circle will start again!

Given what happened last year, when the China transaction was booked at the end of the financial year and converted a substantial loss into a profit, I would think that PKF will be looking very very closely at that transaction.