Henan Liliang Diamond Co.Ltd(301071) : self evaluation report on internal control in 2021

Henan Liliang Diamond Co.Ltd(301071)

Self evaluation report on internal control in 2021

Henan Liliang Diamond Co.Ltd(301071) all shareholders:

In accordance with the provisions of the basic norms of enterprise internal control and its supporting guidelines and other internal control regulatory requirements (hereinafter referred to as the “enterprise internal control normative system”), combined with the internal control system and evaluation methods of the company (hereinafter referred to as the “company”), on the basis of daily and special supervision of internal control, We evaluated the effectiveness of the company’s internal control on December 31, 2020 (the benchmark date of the internal control evaluation report).

1、 Important statement

It is the responsibility of the board of directors of the company to establish, improve and effectively implement internal control, evaluate its effectiveness and truthfully disclose the internal control evaluation report in accordance with the provisions of the enterprise’s internal control standard system. The board of supervisors shall supervise the establishment and implementation of internal control by the board of directors. The management is responsible for organizing and leading the daily operation of the enterprise’s internal control. The board of directors, the board of supervisors and the directors, supervisors and senior managers of the company guarantee that there are no false records, misleading statements or major omissions in the contents of this report, and bear individual and joint legal liabilities for the authenticity, accuracy and completeness of the contents of the report.

The objective of the company’s internal control is to reasonably ensure the legal compliance of operation and management, asset safety, authenticity and integrity of financial reports and relevant information, improve operation efficiency and effect, and promote the realization of development strategy. Due to the inherent limitations of internal control, it can only provide reasonable assurance for the realization of the above objectives. In addition, as changes in circumstances may lead to inappropriate internal control or reduced compliance with control policies and procedures, there is a certain risk to speculate the effectiveness of internal control in the future according to the internal control evaluation results.

2、 Internal control evaluation conclusion

According to the identification of major defects in the company’s internal control over financial reporting, there are no major defects in the internal control over financial reporting on the benchmark date of the internal control evaluation report. The board of Directors believes that the company has maintained effective internal control over financial reporting in all major aspects in accordance with the requirements of the enterprise’s internal control standard system and relevant regulations. According to the identification of major defects in the company’s internal control over non-financial reports, the company found no major defects in the company’s internal control over non-financial reports on the benchmark date of the internal control evaluation report.

There are no factors affecting the evaluation conclusion of the effectiveness of internal control from the base date of the internal control evaluation report to the date of issuance of the internal control evaluation report.

3、 Internal control evaluation

(I) evaluation scope of internal control

According to the risk oriented principle, the company determines the main units, businesses and matters included in the evaluation scope and high-risk areas. The main units included in the evaluation scope include: Henan Liliang Diamond Co.Ltd(301071) , Shenzhen Kemei Diamond Technology Co., Ltd. Henan Liliang Diamond Co.Ltd(301071) Hong Kong Co., Ltd. and Henan Baojing New Material Technology Co., Ltd. The total assets of the units included in the evaluation scope account for 100.00% of the total assets in the company’s consolidated financial statements, and the total operating revenue accounts for 100.00% of the total operating revenue in the company’s consolidated financial statements;

The main businesses and matters included in the evaluation scope include: organizational structure, human resources, capital activities, sales business, procurement business, asset management, related party transactions, financial reports, foreign investment and foreign guarantee. The high-risk areas of focus mainly include: sales business, procurement business, capital activities, etc.

The above units, businesses and matters included in the evaluation scope and high-risk areas cover the main aspects of the company’s operation and management, and there are no major omissions.

(II) basis of internal control evaluation and identification standard of internal control defects

The company organizes and carries out internal control evaluation in accordance with the basic norms of enterprise internal control, guidelines for the evaluation of enterprise internal control, guidelines for the application of enterprise internal control, internal control and relevant systems and evaluation methods formulated by the enterprise.

According to the identification requirements of the enterprise internal control standard system for major defects, important defects and general defects, and in combination with the company’s scale, industry characteristics, risk preference, risk tolerance and other factors, the board of directors of the company distinguished internal control over financial reports from internal control over non-financial reports, and studied and determined the specific identification standards of internal control defects applicable to the company, And consistent with previous years. The identification standards of internal control defects determined by the company are as follows: 1 Identification standard of internal control defects in financial reporting

The quantitative criteria for the evaluation of internal control defects in financial reporting determined by the company are as follows:

The standards adopted by the company directly depend on the size of the potential misstatement caused by the internal control defect. The operating revenue, total profit and total assets are taken as the measurement indicators, and the ratio of the potential misstatement to the total potential misstatement items in the company’s consolidated statements of the previous year is taken as the judgment standard, as follows:

Potential misstatement major defects important defects general defects

project

Potential misstatement of operating revenue ≥ 3% of total operating revenue ≤ potential misstatement ＜ 5% of total operating revenue ＜ 3% of 5% of total revenue

Potential misstatement of total profit ≥ 5% of total profit ≤ potential misstatement ＜ 10% of total profit potential misstatement ＜ 10% 5% of total profit

Potential misstatement of total assets ≥ 3% of total assets ≤ potential misstatement potential misstatement of total assets 5% of 5% of total assets

When a potential misstatement caused by an internal control defect affects multiple indicators, the nature of the defect shall be determined according to the lower principle.

The qualitative criteria for the evaluation of internal control defects in financial reporting determined by the company are as follows:

Major defects: ineffective control environment; The supervision of the company’s audit committee and internal audit institutions on internal control is invalid; Discover major fraud of directors, supervisors and senior managers; The company makes significant corrections to the published financial statements; The external audit found that there were significant misstatements in the current financial statements, but the internal control failed to find such misstatements in the operation process; Major defects that have been found and reported to the management have not been corrected within a reasonable time; Other defects that may affect the correct judgment of report users.

Important defects: the severity of individual defects or combined with other defects is lower than that of major defects, but it may still cause the company to deviate from the control objectives.

General defects: other internal control defects that do not constitute major defects or important defects

2. Identification standard of internal control defects in non-financial reporting

The identification of non-financial report defects of the company is mainly based on the severity of the business nature involved, the nature of direct or potential negative impact, the scope of impact and other factors, and the defects are divided into major defects, important defects and general defects.

The quantitative criteria for the evaluation of internal control defects in non-financial reporting determined by the company are as follows:

The standard adopted by the company directly depends on the property loss caused by the internal control defect. Taking the total assets as the measurement index and the ratio of the loss amount to the total assets of the company’s consolidated statements of the previous year as the judgment standard, the details are as follows:

Major defect: economic loss ≥ 5% of total assets

Important defect: 3% of total assets ≤ economic loss ＜ 5% of total assets

General defect: economic loss ＜ 3% of total assets

The qualitative criteria for the evaluation of internal control defects in non-financial reporting determined by the company are as follows:

Major defects: violation of national laws, regulations or normative documents; Lack of decision-making procedures or unscientific decision-making procedures, resulting in major mistakes; Lack of institutional control or systematic failure of important business; The results of internal control evaluation, especially major or important defects, have not been rectified; Other circumstances that have a significant impact on the company.

Important defects: the severity of individual defects or combined with other defects is lower than that of major defects, but it may still cause the company to deviate from the control objectives

General defects: other internal control defects that do not constitute major defects or important defects

(III) identification and rectification of internal control defects

1. Identification and rectification of internal control defects in financial reporting

According to the above identification standards of internal control defects in financial reporting, the company did not have major defects and important defects in internal control of financial reporting during the reporting period.

2. Identification and rectification of internal control defects in non-financial reports

According to the above identification standards of internal control defects in non-financial reports, no major defects and important defects in the company’s internal control over non-financial reports were found during the reporting period.

4、 Description of other major matters related to internal control

None.

Henan Liliang Diamond Co.Ltd(301071) board of directors

February 25, 2022