American Dairy, the Chinese dairy firm, has filed a US$10m lawsuit against its former auditors for “breach of duties” in failing to perform the company’s audits.

The lawsuit, filed against Murrell, Hall, Mcintosh & Co (MHM), and Henny Wee & Co. (HW ), follows a letter from the US Securities and Exchange Commission last year, which requested information in relation to the accounts at American Dairy.

In performing its audits of the company’s year-end financial statements, MHM relied on the audit field work of HW, an affiliated firm in Hong Kong, American Dairy said.

The complaint suggests MHM improperly accepted HW’s representation that it was independent and that the auditors should have evaluated whether it could act as principal auditor and report on the company’s financial statements.

American Dairy dismissed MHM as its independent registered public accountants in December 2007 and seeks to recover compensatory damages of no less than US$10m.