Huaxun Fangzhou Co.Ltd(000687) : Reply of Shenzhen Stock Exchange to Huaxun ark concern letter

Shenzhen xutai Certified Public Accountants (general partnership)

Xutai Certified PublicAccountants (General Partnership)

Shenzhen xutai Certified Public Accountants (general partnership)

Reply to the letter of concern for Huaxun Fangzhou Co.Ltd(000687)

Listed company management Department II of Shenzhen Stock Exchange:

According to the requirements of the letter of concern on Huaxun Fangzhou Co.Ltd(000687) issued by your department on January 26, 2022 (hereinafter referred to as the “letter of concern”), Shenzhen xutai Certified Public Accountants (general partnership) (hereinafter referred to as “the firm”) has implemented the issues listed in your letter of concern item by item as the auditor of financial statements for 2021 to be appointed by Huaxun Fangzhou Co.Ltd(000687) (hereinafter referred to as “Huaxun Ark”) After verification, the relevant questions are replied as follows: 2. The announcement shows that xutai firm completed the filing of accounting firm engaged in securities service business in February 2021, with more than 60 employees and 17 certified public accountants at the end of 2020. Xutai firm is requested to explain the audit projects of listed companies undertaken and planned to undertake so far, including but not limited to the name of audit clients, industry, signing accountants and reviewers, fees, and whether it has the ability to undertake and complete your company’s audit business in combination with professional staffing and project arrangement, as well as the withdrawn professional risk fund Whether the purchased professional insurance can cover the civil liability caused by possible audit failure.

[reply]

As of February 8, 2022, except for the audit business of Huaxun ark to be undertaken, the exchange has not undertaken or planned to undertake other audit projects of listed companies.

Customer Name: Huaxun Fangzhou Co.Ltd(000687)

Industry: communication equipment manufacturing

Proposed signing partner: Yin Qing

Certified public accountant to be signed: Wang Pingping

Proposed project quality control reviewer: Ling Hui

Fees: the current audit fee is 600000 yuan for financial report audit and 300000 yuan for internal control audit. The current audit fee is determined with the company according to the fair and reasonable pricing principle of the market.

There are 17 full-time certified public accountants who have been engaged in securities business as of October 2022, of which more than 60 have been certified public accountants

Address: 29th South B, Hubei building, 9003 Binhe Avenue, Futian District, Shenzhen Tel: 0755-2770 9801

Shenzhen xutai Certified Public Accountants (general partnership)

Xutai Certified PublicAccountants (General Partnership)

The entry procedures have been completed.

According to the audit needs of Huaxun ark in 2021, in addition to appointing partners with professional competence and signing certified public accountants, the exchange also plans to appoint 6 auditors at all levels with annual report audit experience of listed companies, and has formulated a detailed audit plan.

Brief introduction of the proposed signing partner of the project:

Yin Qing, a Chinese certified public accountant, has been engaged in securities service business for 12 years. He became a certified public accountant on July 25, 2005. He began to engage in securities service business in January 2010, worked in Beijing Xinghua Certified Public Accountants (special general partnership) with business qualification related to securities and futures, and successively served as project manager. He began to practice in Shenzhen xutai Certified Public Accountants (general partnership) in December 2012, and now serves as the Executive partner of Shenzhen xutai Certified Public Accountants (general partnership). During his employment, he has provided securities services such as third board application audit, annual report audit of listed companies and merger and reorganization audit for many enterprises. He has experience in securities services and has corresponding professional competence.

Profile of the certified public accountant to be signed:

Wang Pingping, a Chinese certified public accountant, has been engaged in securities service business for 5 years. In July 2020, he became a certified public accountant. He began to engage in securities service business in May 2016. He once worked in Shenzhen Branch of zhongzhun Certified Public Accountants (special general partnership) and Shenzhen Branch of zhongshenzhonghuan Certified Public Accountants (special general partnership) with business qualification related to securities and futures. He began to practice in xutai firm in May 2020, During his employment, he has provided securities services such as annual report audit of listed companies and merger and reorganization audit for many enterprises.

Brief introduction of project quality control reviewer:

Ling Hui, a Chinese certified public accountant, has been engaged in securities service business for 12 years. He became a certified public accountant on April 27, 2006. He began to engage in the audit of Listed Companies in January 2010, first working in Beijing Xinghua Certified Public Accountants (special general partnership) with business qualification related to securities and futures, and then working as a partner in zhongzhun Certified Public Accountants (special general partnership). He began to practice in xutai certified public accountants in August 2020. During his practice, he provided declaration audit and Securities services such as annual report audit and merger and reorganization audit.

According to the notice of the Ministry of Finance on printing and distributing the measures for the administration of occupational risk funds of accounting firms (CAI Kuai Han [2007] No. 9), the exchange has withdrawn the occupational risk fund based on the audit business income at the end of each year. As of December 31, 2021, the balance of the occupational risk fund was 1691800 yuan. In order to improve the ability to resist professional liability risks, according to the notice of the Ministry of Finance on printing and distributing the Interim Measures for professional liability insurance of accounting firms (CK [2015] No. 13), the exchange purchased the professional liability insurance of Ping An Insurance (Group) Company Of China Ltd(601318) Property Insurance Co., Ltd., with an insured amount of 10 million yuan and a compensation limit of 10 million yuan each time, Purchased execution

Address: 29th South B, Hubei building, 9003 Binhe Avenue, Futian District, Shenzhen Tel: 0755-2770 9801

Shenzhen xutai Certified Public Accountants (general partnership)

Xutai Certified PublicAccountants (General Partnership)

Industry insurance is expected to cover civil liability caused by audit failure.

To sum up, the Institute has experience in dealing with major and complex matters. The partners appointed by the project, the project signing certified public accountants and the project quality control reviewers have all engaged in securities service business and have professional competence.

The firm has allocated enough professionals according to the project situation, formulated targeted audit plans, and fully understood the risks faced by the company. Therefore, the firm has the ability to undertake and complete the annual report audit business of Huaxun ark in 2021. 3. The former annual audit accountant of your company is Zhongxi Certified Public Accountants (special general partnership) (hereinafter referred to as “Zhongxi certified public accountants”). Zhongxi certified public accountants has issued an audit report with no opinion and an internal control audit report with negative opinion on your company’s 2020 financial report, which forms the basis of unable to express an audit opinion, so that it is impossible to judge your company’s sustainable operation ability. Please explain whether xutai firm has fully understood the risks faced by your company, whether it has conducted necessary communication with Zhongxi firm on matters that have a significant impact on the audit in accordance with the relevant requirements of the audit standards before determining to accept the entrustment, and the specific situation of communication.

[reply]

Before undertaking the business, the Institute carried out: (1) discussing with the management the objectives and scope of the audit, the purpose of the audit report, the responsibilities of the management, the applicable preparation basis of the financial statements, the arrangements for planning and executing the audit work (including the composition of the project team) The expected form and content of the audit report to be issued (and the explanation that the audit report issued under specific circumstances may be different from the expected form and content), the arrangement of communication with the former certified public accountant, the calculation basis and arrangement of fees, and other matters that need to be agreed. (2) Communicate with the former certified public accountant after obtaining the written consent of the auditee. (3) Have a preliminary understanding of the auditee and its environment. (4) Evaluate whether it has the independence and ability required to carry out the audit. (5) Comprehensively evaluate the risk of undertaking the business and draw the conclusion that it can undertake the business.

The opinion type of Huaxun Ark’s 2020 annual audit report is unable to express opinions. Zhongxi Certified Public Accountants (special general partnership) (hereinafter referred to as “Zhongxi certified public accountants”) issued the audit report zxsz [2021] No. 01184, and the signed certified public accountants are Chen Yuchi and Shen Jianping. The certified public accountant Yin Qing appointed by the firm led the project team to carry out preliminary audit activities, After consulting the public information in recent three years and obtaining the consent of Huaxun ark, he mailed a written communication letter to Zhongxi firm, the audit institution of Huaxun ark in 2020, on January 15, 2022, and obtained a reply from Zhongxi firm on January 17, 2022. Zhongxi firm and the signing certified public accountant expressed their full cooperation with the communication between the former and the latter accountants. After communication, no major matters affecting the undertaking of the business by the exchange were found.

To sum up, we have understood the risks of the project, and we can’t find out in the 2020 audit report of Huaxun ark

Address: 29th South B, Hubei building, 9003 Binhe Avenue, Futian District, Shenzhen Tel: 0755-2770 9801

Shenzhen xutai Certified Public Accountants (general partnership)

Xutai Certified PublicAccountants (General Partnership)

Expressed that the matters involved in the opinion have been communicated with Zhongxi firm as necessary in accordance with the relevant requirements of the audit standards. If the Exchange formally accepts the appointment as the auditor of the financial statements of Huaxun ark in 2021, it will issue appropriate audit opinions according to the results of the implementation of audit procedures with the audit of the annual report in 2021.

We hereby reply.

Shenzhen xutai Certified Public Accountants (general partnership) February 8, 2022

Address: 29th South B, Hubei building, 9003 Binhe Avenue, Futian District, Shenzhen Tel: 0755-2770 9801

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