'KPMG is not aware of any reason to doubt the reasonableness of the work undertaken in connection with the engagements concerned,' KPMG said in a statement.

The accounting firm was Moulin's auditor from 1991 to 2002. Moulin listed on the Hong Kong stock exchange in October 1993.

A writ of summons filed in the High Court by Clifford Chance, the international law firm acting for Moulin, said: 'KPMG was in breach of contract and/or negligent in auditing and reporting on the accounts of [Moulin and some subsidiaries] for the years ended March 1999, March 2000 and March 2001.'

'Had KPMG complied with its duties, KPMG would have reported the audit issues and suspected fraud to Moulin's independent directors and/or audit committee, and requested these matters be notified by Moulin to the Stock Exchange of Hong Kong,' the writ said.

Moulin is suing KPMG for HK$306.1 million in dividends, HK$70.7 million in taxes and HK$95 million in interest and bank fees related to trade financing, which Moulin has paid out, according to the writ.

The writ alleged Moulin need not have paid those dividends, taxes and trade financing expenses because the company and two of its subsidiaries, Moulin Optical Manufactory and Leadkeen Industrial, actually incurred losses for the years ended March 1999, March 2000 and March 2001.

Moulin and the two subsidiaries posted profits in 1999 to 2001, according to accounts audited by KPMG with unqualified opinion.

Had Moulin's accounts been properly restated, Moulin Optical, the Hong Kong-listed firm's largest operating subsidiary, would have been insolvent in the year ended March 1999, the writ said.

Moulin's revenues were overstated by HK$194.7 million in 1999, HK$210.7 million in 2000 and HK$257.5 million in 2001, due to some North American debtors, alleged the writ. 'The North American debtors were and are fictitious. They do not, and never did, exist.'

Revenues were also overstated in the three years, by HK$20.4 million, HK$14.5 million and HK$34.7 million, because trade finance debt repayments were wrongly recorded as loans owed to Moulin Optical, claimed the writ.

The writ faulted KPMG for failing to report audit problems when it resigned as Moulin's auditor on April 15, 2002. In a letter of May 13, 2002, KPMG told Moulin's succeeding auditor, Ernst & Young: 'To the best of our knowledge, there are no circumstances which you should be aware of.'

Yet on April 3, 2002, KPMG raised its concerns over certain audit issues with Moulin executives, the writ said. In a letter dated May 10, 2002, KPMG told Moulin chief executive Cary Ma Lit-kin that he should notify Ernst & Young of any unresolved audit issues.

Moulin went into provisional liquidation in June 2005, owing more than HK$2 billion to more than 20 banks.

Moulin was wound up in June last year.