Lanzhou Foci Pharmaceutical Co.Ltd(002644)
Internal control evaluation report in 2021
Lanzhou Foci Pharmaceutical Co.Ltd(002644) 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 Lanzhou Foci Pharmaceutical Co.Ltd(002644) (hereinafter referred to as the “company”) internal control system and evaluation methods, on the basis of daily and special supervision of internal control, Self evaluate the soundness and effectiveness of the company’s internal control as of December 31, 2021.
1、 Board statement
According to the provisions of the enterprise internal control standard system, it is the responsibility of the company’s board of directors to establish, improve and effectively implement internal control, evaluate its effectiveness, and truthfully disclose the internal control evaluation report. The board of supervisors supervises the establishment and implementation of internal control by the board of directors, and the management is responsible for organizing and leading the daily operation of the company’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 disclosure, improve operation efficiency and effect, and promote the company to realize its 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 relevant 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 standard of the company’s internal control defects in financial reporting, on the benchmark date of the internal control evaluation report, the company has 1 major defect and 0 major defect in internal control in financial reporting. The board of Directors believes that in addition to the above-mentioned one major defect, the company has maintained effective internal control over financial reporting in all major aspects in accordance with the requirements of the enterprise internal control standard system and relevant regulations.
According to the identification standard of the company’s internal control defects in non-financial reports, on the benchmark date of the internal control evaluation report, the company has 0 major defects and 1 major defects in the internal control of non-financial reports. The company has been in accordance with the internal control of the enterprise.
There are no factors affecting the evaluation conclusion of the effectiveness of internal control between the benchmark date of the internal control evaluation report and the issuance date of the internal control evaluation report.
3、 Scope of internal control evaluation
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 the company’s headquarters, branches and subsidiaries included in the consolidated statements, covering the company’s major business operations. The total assets of the units included in the evaluation scope account for 100% of the total assets in the company’s consolidated financial statements, and the total operating revenue accounts for 100% of the total operating revenue in the consolidated financial statements. The main businesses and matters included in the evaluation scope include: organizational structure, human resources, social responsibility, production management, sales business, related party transactions, raised funds, financial reports, comprehensive budget, contract management, internal information transmission, information disclosure and information system; The high-risk areas of focus mainly include capital activities, sales business, asset management, safety production, related party transactions, information disclosure, 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.
4、 Internal control evaluation basis and defect identification standard
The company organizes and carries out internal control evaluation in accordance with the standard system of enterprise internal control, the basic norms of enterprise internal control, the rules for the preparation and reporting of information disclosure of companies offering securities to the public No. 21 – General Provisions on annual internal control evaluation report and other laws and regulations, regulatory provisions and relevant provisions of the articles of association, and in combination with the actual situation of the company.
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:
(I) identification criteria for defects in internal control over financial reporting
1. The quantitative criteria for the identification of internal control defects in financial reporting are as follows:
(1) Potential misstatement of total profit:
① General defect: misstatement 5% of total profit;
② Important defects: 5% of total profits ≤ misstatement 10% of total profits;
③ Major defects: misstatement ≥ 10% of total profits.
(2) Potential misstatement of total assets:
① General defects: misstatement 0.5% of total assets;
② Important defects: 0.5% of total assets ≤ misstatement 5% of total assets;
③ Major defects: misstatement ≥ 5% of total assets.
(3) Potential misstatement of operating income:
① General defects: misstatement 0.5% of operating income;
② Important defects: 0.5% of operating income ≤ misstatement 5% of total assets;
③ Major defects: misstatement ≥ 5% of operating income.
(4) Potential misstatement of owner’s equity:
① General defects: misstatement 5% of owner’s equity;
② Important defects: 5% of owner’s equity ≤ misstatement 10% of owner’s equity;
③ Major defects: misstatement ≥ 10% of owner’s equity.
2. The qualitative criteria for the identification of internal control defects in financial reporting are as follows:
(1) Major defects
① Fraud by directors, supervisors and senior managers and causing losses to the company;
② Make misstatement correction for major errors in the announced financial report;
③ There is a material misstatement in the current financial report, but the internal control fails to find the misstatement in the operation process; ④ The supervision of the audit committee and the internal audit department on the internal control of financial reports is invalid;
⑤ The accounting firm is unable to express opinions or negative opinions on the issuance of the financial report;
⑥ The accounting firm issues an assurance report that cannot express an opinion on internal control.
(2) Important defects
① Fraud of directors, supervisors and senior managers, but no loss is caused to the company;
② Failure to select and apply accounting policies in accordance with GAAP;
③ Failure to establish anti fraud procedures and control measures;
④ No corresponding control mechanism has been established or implemented for the accounting treatment of unconventional or special transactions; ⑤ For the preparation of financial statements, there are reasonable defects or multiple control objectives that cannot be achieved.
(3) General defect
① The efficiency of the company’s decision-making procedure is not high;
② The company’s personnel violate the internal rules and regulations, but no loss is caused;
③ Serious loss of business personnel in general posts of the company;
④ Negative news appeared in the media, but it had little impact and did not cause stock price changes;
⑤ Defects in the company’s general business system or system;
⑥ General defects of the company have not been rectified;
⑦ The company has other defects other than the above.
(II) identification standard of internal control defects in non-financial reports
1. The quantitative criteria for the identification of internal control defects in non-financial reports are as follows:
Amount of direct property loss:
(1) General defect: loss 5% of total profit;
(2) Important defect: 5% of total profit ≤ loss ＜ 10% of total profit;
(3) Major defect: loss ≥ 10% of total profit.
2. The qualitative criteria for the identification of internal control defects in non-financial reports are as follows:
(1) Major defects
① The company lacks democratic decision-making procedures;
② Improper decision-making procedures of the company lead to major mistakes;
③ The company violates national laws and regulations and is severely punished;
④ Abnormal and significant changes in directors, supervisors, senior managers and main technicians of the company;
⑤ Vicious negative news frequently appears in the media, involving a wide range and the negative impact has not been eliminated, or although the negative news only affects local areas, it has caused changes to the stock price;
⑥ The company’s important business lacks system control or the system fails;
⑦ Major or important defects in the company’s internal control have not been rectified;
⑧ The company is subject to administrative punishment by the CSRC or public condemnation by the stock exchange.
(2) Important defects
① The company’s democratic decision-making procedure exists but is not perfect;
② General mistakes caused by improper decision-making procedures of the company;
③ There are defects in the company’s important business system or system;
④ The company violates national laws and regulations and is severely punished;
⑤ Serious loss of business personnel in key positions of the company;
⑥ Negative news appeared in the media, which affected some regions and had a great impact, but did not cause stock price changes;
⑦ The company has been criticized by the stock exchange;
⑧ Important or general defects in the company’s internal control have not been rectified.
(3) General defect
① The efficiency of the company’s decision-making procedure is not high;
② The company’s personnel violate the internal rules and regulations, but no loss is caused;
③ Serious loss of business personnel in general posts of the company;
④ Negative news appeared in the media, but it had little impact and did not cause stock price changes;
⑤ Defects in the company’s general business system or system;
⑥ General defects of the company have not been rectified;
⑦ The company has other defects other than the above.
5、 Identification and rectification of internal control defects
1. Identification of defects in internal control over financial reporting
According to the above identification standards of internal control defects in financial reports, the company had one major defect in internal control over financial reports during the reporting period. There is a big difference between the final settlement of the project of “going out of the city and entering the park” and the estimated amount of the project in 2018. The company needs to correct and retroactively adjust the accounting errors in the early stage.
In view of the above major defects in internal control, the company has implemented the following rectification measures: the company comprehensively combs and verifies the financial statements of 2018, 2019, 2020, the first quarter of 2021, the half year of 2021 and the third quarter of 2021 in accordance with the accounting standards for business enterprises and the company’s accounting policies The financial statements of the first quarter of 2021, the half year of 2021 and the third quarter of 2021 shall be traced and disclosed.
Next, the company will strengthen the communication and transmission of information between departments, strengthen the tracking management of investment projects, clarify relevant work processes and requirements, further improve the ability of industry finance integration and financial control, continuously improve the preparation quality of financial reports, and ensure the authenticity, accuracy and integrity of financial statements.
2. Identification of defects in internal control over non-financial reporting
According to the above identification standards of internal control defects in non-financial reports, there was one important defect in internal control of non-financial reports during the reporting period, and the internal control of the company’s engineering project management business was invalid.
In view of the above major defects in internal control, the company has implemented the following rectification measures: the company has revised and improved the management systems such as project investment control (tracking) management system, project completion acceptance management system and project settlement management system, standardized the implementation of project management and improved the business process at the institutional level.
Next, the company will further standardize the project management process and strengthen the management and control of the whole process of the project. At the same time, the company will constantly adjust and optimize business processes according to the company’s strategic planning, internal and external environmental changes, risk factors and the actual situation of the company, continuously improve and standardize various internal control systems of the company, ensure the continuous effectiveness of the company’s internal control, improve the company’s governance, improve the company’s operation level and promote the high-quality development of the company.
6、 Description of other major matters related to internal control
The company has no explanation of other major matters related to internal control.
Lanzhou Foci Pharmaceutical Co.Ltd(002644) board of directors March 15, 2022
