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I think something is hidden. I agreed (in term of proper procedure and reporting line)the audit issues firstly will highlighted to AC. High chance AC unable to resolve the issue. AC should be a person who outside the Organization and it’s independence. If they helped each other, it’s against and break the corporate governance.
Normal practise for those suspicious client/supplier, they can ask their overseas KPMG member physically visit the customer place to ensure the existence and validity.