Announcement on the reply to the letter of concern of Shenzhen Stock Exchange
The company and all members of the board of directors guarantee that the information disclosed is true, accurate and complete without false records, misleading statements or major omissions.
Lvjing Holding Co.Ltd(000502) (hereinafter referred to as “the company”) received the letter of concern on Lvjing Holding Co.Ltd(000502) issued by Shenzhen Stock Exchange on February 25, 2022 (company department concern letter [2022] No. 154, hereinafter referred to as “the concern letter”), and now reply to the relevant information as follows:
On February 25, 2022, your company disclosed the announcement on the change of accounting firm (hereinafter referred to as the announcement), which said that the original audit institution Lixin Certified Public Accountants (special general partnership) (hereinafter referred to as “Lixin”) was unable to complete the company’s 2021 annual financial report and internal control audit on schedule due to objective conditions, After negotiation, the company will no longer serve as the audit institution of the company in 2021, and the company plans to hire zhongxinghua Certified Public Accountants (special general partnership) (hereinafter referred to as “zhongxinghua Institute”) as the audit institution of the company in 2021. Our department is concerned about this. Please verify and explain the following matters on the basis of consulting Lixin office and ZTE China office:
1. Because the audited net profit (lower before and after deducting non recurring profits and losses) in 2020 is negative and the operating income is less than 100 million yuan, your company’s shares are subject to delisting risk warning. Because the lower of the net profit before and after deducting non recurring profits and losses in the last three fiscal years is negative, and the audit report of the last year shows that there is uncertainty in the company’s sustainable operation ability, Your company’s stock is subject to other risk warnings.
The time point for your company to change the annual audit institution is less than two months from the disclosure date of your company’s annual report (April 13, 2022). Please explain whether ZTE fully understands the production, operation and delisting risks faced by your company in combination with the past audit business development of ZTE, the audit work plan, professional staffing and other factors, Whether the risk assessment procedures and results of business undertaking are compliant, whether they have the audit time, personnel and professional competence to undertake the audit business of your company’s annual report, and whether they have done a good job in the communication between the front and rear accountants. Please provide written explanation on the above matters at the same time.
[company reply]:
1. ZTE has fully understood the production, operation and delisting risks faced by the company
In mid February 2022, the management of Lvjing Holding Co.Ltd(000502) (hereinafter referred to as “Lvjing holding company” and “the company”) and zhongxinghua Certified Public Accountants (special general partnership) (hereinafter referred to as “zhongxinghua Institute”) exchanged views on the company’s development strategy, operation, financial situation, performance forecast and delisting risk.
ZTE has fully understood the production, operation and delisting risks faced by the company.
2. The risk assessment procedures and results of the business undertaken by ZTE are compliant
Before February 25, 2022, ZTE China office carried out business undertaking due diligence at the company’s site. After the completion of due diligence, ZTE performed its internal risk assessment procedures for business undertaking.
The risk assessment procedures and results of the business undertaken by ZTE are compliant.
3. ZTE has the audit time, personnel and professional competence to undertake the audit business
The disclosure time of the company’s annual report has been changed to April 30, 2022. From the due diligence on business undertaking in mid February to the disclosure date of the company’s annual report, it has been nearly two and a half months. Combined with the company’s business scale, we believe that the time for zhongxinghua to implement the audit procedures is sufficient.
For the audit of the company’s annual report, ZTE has established an on-site audit team of about 10 people, including 5 certified public accountants. In the follow-up, it will continue to send additional personnel according to the work.
The audited business income of ZTE in 2020 was 152351 million yuan, including 3571593 million yuan from securities business. ZTE audited 80 annual reports of Listed Companies in the previous year, and the industries involved in listed companies include manufacturing; Information transmission software and information technology and services; real estate Agriculture, forestry, animal husbandry and fishery Water conservancy, environment and public facilities management. Pan Daliang, the project partner, Ren Huagui, the signing certified public accountant and Jiang Yunfeng, the quality control reviewer, have been engaged in the audit of listed companies for many years, and have not been subject to criminal punishment, administrative punishment, supervision and management measures, self-discipline supervision measures and disciplinary sanctions for their professional behavior in recent three years. ZTE has rich experience and professional ability in providing audit services.
To sum up, ZTE has the audit time, personnel and professional competence to undertake the audit business.
4. The company has done a good job of communication between the former and the latter accountants
The company has communicated with the previous accounting firms on the change of accounting firm, and the previous accounting firms have no objection to the change.
The previous and subsequent accountants have made comments on (1) whether they have found problems in integrity and integrity of the company’s management; (2) Differences of opinion between Lixin office and the company’s management on major accounting, auditing and other issues; (3) The management fraud, violation of laws and regulations and major defects in internal control communicated between Lixin office and the corporate governance; (4) Lixin has completed the communication on the reasons for the company’s change of accounting firm.
[ZTE reply]:
Zhongxinghua Certified Public Accountants (special general partnership) signed 449 certified public accountants’ audit reports on securities service business in 2020. The audited business income in 2020 was 152351 million yuan, including 133493 million yuan of audit business income and 3571593 million yuan of securities business income; The annual reports of 80 listed companies were audited last year, and the industries involved by listed companies include manufacturing; Information transmission software and information technology and services; real estate Agriculture, forestry, animal husbandry and fishery The total audit fees for water conservancy, environment and public facilities management were 83.863 million yuan.
1. Do you fully understand the production, operation and delisting risks faced by the company
In the middle of February 2022, we had a preliminary understanding of the relevant situation of Lvjing Holding Co.Ltd(000502) (hereinafter referred to as “Lvjing holding company”), and sorted out the company’s operation, financial situation, major events and risks in recent years.
The business of Lvjing holding company increased significantly in 2021. The audit scope of the 2021 annual report of Lvjing holding company includes the parent company of Lvjing holding company and 8 subsidiaries (grandchildren) included in the consolidation scope. In 2021, Lvjing holding company mainly has three companies to carry out business, namely, the subsidiary Guangzhou Hengyuan Property Management Co., Ltd. (hereinafter referred to as “Hengyuan property”), the subsidiary Shenzhen Hongyi Construction Engineering Co., Ltd. (hereinafter referred to as “Shenzhen Hongyi”), and the subsidiary Sanhe Yali information technology Co., Ltd. (hereinafter referred to as “Sanhe Yali”), The main business units are geographically distributed in Guangzhou, Shenzhen and Hebei.
The annual income of Lvjing holdings is expected to be 150175 million yuan.
The audited net profit of Lvjing holding company in 2020 (the lower before and after deducting non recurring profits and losses) is negative and the operating income is less than 100 million yuan. According to the provisions of the stock listing rules of Shenzhen Stock Exchange (revised in 2020), the company has been warned of delisting risk.
According to article 9.3.11 of the Listing Rules of Shenzhen Stock Exchange (revised in 2022), Shenzhen Stock Exchange (hereinafter referred to as “the exchange”) will decide to terminate the listing and trading of the company’s shares in case of any of the following circumstances in 2021:
(I) the audited net profit is negative and the operating income is less than 100 million yuan, or the net profit of the most recent fiscal year after retroactive restatement is negative and the operating income is less than 100 million yuan;
(II) the audited ending net assets are negative, or the ending net assets of the latest fiscal year after retroactive restatement are negative;
(III) the financial accounting report is issued with qualified opinions, unable to express opinions or negative opinions;
(IV) failing to disclose the annual report guaranteed by more than half of the directors to be true, accurate and complete within the statutory time limit; (V) although it complies with the provisions of article 9.3.7, it fails to apply to the exchange for cancellation of delisting risk warning within the specified time limit;
(VI) due to non-compliance with article 9.3.7, the delisting risk warning application was not reviewed and approved by the exchange.
The self regulatory guidelines for listed companies of Shenzhen Stock Exchange No. 1 – business handling stipulates matters related to operating income deduction. In addition to the audit report on the 2021 financial statements of Lvjing holding company, we also need to issue the special audit report on operating income deduction. The two bases are different. There will be differences between the operating income deducting the business income irrelevant to the main business and the income without commercial substance and the operating income recognized in the audit report.
For this matter, we will pay attention to the following matters in the audit process:
(1) Whether the operating income includes various incomes that are not directly related to the normal business operation of Lvjing holding company, or are related to the normal business operation, but because of its special nature, contingency and temporary nature, it affects the statement users to make a normal judgment on the sustainable operation ability of Lvjing holding company;
(2) Whether there is income generated from various transactions and events that are not commercially reasonable, such as no significant change in future cash flow;
We fully understand the production, operation and delisting risks faced by the company.
2. Whether the risk assessment procedures and results of business undertaking are in compliance
Before February 25, 2022, in accordance with the quality control process of the Institute and the relevant provisions of the auditing standards for Chinese certified public accountants, we carried out the business undertaking due diligence at the site of Lvjing holding company, implemented the class A + business risk assessment procedures, formed the business undertaking risk assessment report, and passed the approval of the risk committee, The risk assessment procedures and results of our business undertaking are compliant.
3. Do you have the audit time, personnel and professional competence to undertake the audit business
From mid February to April 30, 2022, when Lvjing holding company plans to make an appointment for the disclosure of the annual report, there is nearly two and a half months. Combined with the business scale of Lvjing holding company, we believe that the time for the implementation of audit procedures is sufficient.
According to the project team’s understanding of the company’s business and scale and risk assessment, and in combination with the communication with the former accountant, an on-site audit team of about 10 people, including 5 certified public accountants, is established. It is planned to be divided into two groups to carry out the audit work at the same time. In the follow-up, more personnel will be sent according to the work exhibition, such as interviews, visits and Field observation, etc. We have a strict internal three-level review process. Pan Daliang, the project partner, became a certified public accountant in 2007. He began to audit listed companies in 2004 and began to practice in zhongxinghua Institute in 2017. He has signed audit reports of three listed companies in recent three years, including Jiangsu Gian Technology Co.Ltd(300709) ( Jiangsu Gian Technology Co.Ltd(300709) ), Huada Technology ( Huada Automotive Technology Corp.Ltd(603358) ) and Jiangsu Akcome Science And Technology Co.Ltd(002610) ( Jiangsu Akcome Science And Technology Co.Ltd(002610) ).
Ren Huagui, the signing certified public accountant, became a certified public accountant in 2004. He began to audit listed companies in 2013 and began to practice in zhongxinghua Institute in 2015. In recent three years, he has signed the audit reports of four listed companies, including Changshu Tianyin Electromechanical Co.Ltd(300342) ( Changshu Tianyin Electromechanical Co.Ltd(300342) ), Huada Automotive Technology Corp.Ltd(603358) ( Huada Automotive Technology Corp.Ltd(603358) ), Jiangsu Akcome Science And Technology Co.Ltd(002610) ( Jiangsu Akcome Science And Technology Co.Ltd(002610) ), Nanjing Yunhai Special Metals Co.Ltd(002182) ( Nanjing Yunhai Special Metals Co.Ltd(002182) ).
Quality control reviewer Jiang Yunfeng: Jiang Yunfeng became a certified public accountant in 2015, began to audit listed companies in 2014 and began to practice in zhongxinghua Institute in 2021.
The project partner, the signing certified public accountant and the project quality control reviewer have not been subject to criminal punishment, administrative punishment, supervision and management measures, self-discipline supervision measures and disciplinary sanctions for their professional behavior in recent three years.
We have the audit time, personnel and professional competence to undertake the audit business.
4. Whether the communication between the former and the latter accountants is well done
The necessary communication procedures between the former certified public accountants and the subsequent certified public accountants have been implemented in accordance with the requirements of Auditing Standards No. 1153 of the people’s Republic of China. After obtaining the consent of Lvjing holding company, we sent the communication letter with the former certified public accountant to Lixin Certified Public Accountants (special general partnership) (hereinafter referred to as “Lixin office”), which undertook the audit of the financial statements of Lvjing holding company in 2020. We will discuss (1) whether we have found any integrity and integrity problems in the management of the company; (2) Differences between your firm and the management of the company on major accounting, auditing and other issues; (3) The management fraud, violation of laws and regulations and major defects in internal control communicated between your firm and the management of the company; (4) Your firm has completed communication on the reasons for the company’s change of accounting firm. To sum up, in the process of undertaking the business of Lvjing holding company, according to the relevant provisions of the auditing standards for Chinese certified public accountants, we made necessary communication with the former certified public accountant, fully understood and evaluated the operation and financial situation of Lvjing holding company, and had sufficient time for prudent audit and implementation of audit procedures. 2. Please explain the specific contents and progress of the annual audit work carried out by Lixin, whether there are differences or disputes on the matters related to the annual audit during the early communication between the management and Lixin, and whether there are restrictions on the audit scope or other improper circumstances in the audit process, and please explain the specific reasons why Lixin will no longer serve as the annual audit accountant of your company, Whether the above situations exist, communicate with the subsequent accountants and provide written statements and opinions. The audit committee and independent directors of your company are requested to verify the reasons for the change of accounting firm and explain whether there are other reasons or matters leading to the change of accounting firm.
[company reply]:
The matters involved in this article need to be further supplemented and improved by the company, which will be disclosed simultaneously with Lixin after being supplemented and improved.
3. Please describe the evaluation procedures and results adopted by the board of directors, independent directors and board of supervisors in the process of selecting zhongxinghua Institute, and explain whether the procedures are sufficient
