Jiangsu Hongde special parts Co., Ltd
audit report
Hxsz (2021) No. Hunan Zhenghong Science And Technology Develop Co.Ltd(000702)
Table of contents page
1、 Audit report 1-5 II. Audited financial statements and notes
1. Consolidated and company balance sheet 6-9 2, consolidated and company income statement 10-11 3, consolidated and company cash flow statement 12-13 4, consolidated and company statement of changes in shareholders’ equity 14-21 5, notes to financial statements 22-144 and Hexin Certified Public Accountants (special general partnership)
September 6, 2001
Report of Jiangsu Hongde special parts Co., Ltd
audit report
Hxsz (2021) No. Hunan Zhenghong Science And Technology Develop Co.Ltd(000702) all shareholders of Jiangsu Hongde special parts Co., Ltd.:
1、 Audit opinion
We have audited the financial statements of Jiangsu Hongde special parts Co., Ltd. (hereinafter referred to as “Hongde shares”), including the consolidated and company’s balance sheets on June 30, 2021, December 31, 2020, December 31, 2019 and December 31, 2018, the consolidated and company’s income statement, consolidated and company’s cash flow statement from January to June 2021, 2020, 2019 and 2018 Consolidated statement of changes in shareholders’ equity and notes to relevant financial statements.
In our opinion, the attached financial statements are prepared in accordance with the accounting standards for business enterprises in all material aspects, and fairly reflect the financial position of Hongde shares on June 30, 2021, December 31, 2020, December 31, 2019 and December 31, 2018, as well as the operating results and cash flow of Hongde shares from January to June, 2021, 2020, 2019 and 2018.
2、 Basis for forming audit opinions
We conducted our audit in accordance with the auditing standards for Chinese certified public accountants. The “responsibilities of certified public accountants for the audit of financial statements” in the audit report further expounds our responsibilities under these standards. In accordance with the code of professional ethics for Chinese certified public accountants, we are independent of Hongde shares and have fulfilled other responsibilities in terms of professional ethics. We believe that the audit evidence we have obtained is sufficient and appropriate, which provides a basis for our audit opinion.
3、 Key audit matters
The key audit matters are the most important matters that we consider to audit the current financial statements according to our professional judgment. The response to these matters is based on the overall audit of the financial statements and the formation of audit opinions. We will not express separate opinions on these matters. We confirm that the following matters are the key audit matters that need to be communicated in the audit report:
Hexin Certified Public Accountants (special general partnership) 1
Report of Jiangsu Hongde special parts Co., Ltd
(I) recognition of main business income
1. Event description
As shown in notes V and 33 to the financial statements, the main business sales revenue of Hongde Co., Ltd. from January to June 2021, 2020, 2019 and 2018 were 35217400201 yuan, 66439313647 yuan, 60446960453 yuan and 48559403391 yuan respectively. Among them, the export sales revenue is 10478532816 yuan, 15654653526 yuan, 26414229714 yuan and 18558713045 yuan respectively. As the main business income of Hongde shares increases year by year and there are many types of products sold, there may be a risk that the sales income is not correctly presented in the appropriate period.
2. Audit response
We understand and evaluate whether the design and operation of internal control related to revenue recognition by the management are effective; Check the original data related to revenue recognition, including sales contract, order, delivery order, sales invoice, customs declaration, customer statement, receipt, etc; Check the import and export statistics of banks and customs; Select samples to implement the confirmation procedure; Conduct on-site visits and video interviews with major customers at home and abroad; Analyze and evaluate the major risks and reward transfer time points related to the recognition of product sales revenue, and then check whether the recognition of revenue is consistent with the disclosed accounting policies; Perform a cut-off test on the revenue recognized before and after the balance sheet date to check whether the revenue recognition is included in the correct accounting period.
(II) recognition of inventory value and provision for falling price reserves
1. Event description
As shown in notes V and 8 to the financial statements, as of June 30, 2021, December 31, 2020, December 31, 2019 and December 31, 2018, the book value of Hongde’s inventory was 12787 Tiza Information Industry Corporation Inc(300209) yuan, 11195641355 yuan, 11110113658 yuan and 10070425092 yuan respectively, accounting for 15.66%, 14.64%, 15.29% and 15.56% of the total assets at the end of the period. As the book value of inventories accounts for a high proportion of total assets, there may be a risk of material misstatement. Therefore, we regard the existence of inventories of Hongde Co., Ltd. and the accuracy of valuation and allocation as key audit matters.
Meanwhile, as of June 30, 2021, December 31, 2020, December 31, 2019 and December 31, 2018, the amount of inventory falling price reserves was 176964629 yuan, 193637735 yuan, 328577849 yuan and 346394796 yuan respectively.
The company’s products are mainly customized products, which do not have universal applicability. Therefore, the execution and cancellation of orders directly affect the realization of the company’s inventory value. The management of the company shall conduct order matching analysis on the inventory on each balance sheet date to confirm whether the inventory is in stock
Hexin Certified Public Accountants (special general partnership) 2
Report of Jiangsu Hongde special parts Co., Ltd
When there are signs of impairment and the book value is higher than the net realizable value, the inventory falling price reserves shall be withdrawn. The management determines the net realizable value of the inventory based on the higher of the present value of the expected future cash flow of the asset or the net amount of the fair value minus the disposal expenses. There is uncertainty in the estimated future cash flow and the estimated net realizable value of inventories, which involves the significant judgment of the management. Therefore, we determine the provision for inventory falling price of Hongde shares as a key audit event.
2. Audit response
(1) Existence of inventory and accuracy of valuation and allocation
Conduct physical inventory of inventory, obtain evidence of inventory quantity and status, and confirm whether the internal control is effective; Check whether the original vouchers of the inventory added in each period are complete, such as sales orders, production plans, production process records, material requisition applications, payment documents, etc., and recheck the cost accounting to confirm whether the inventory pricing and cost allocation are correct; Obtain the details of returned products, understand and review the reasons and approval process of returned products, and confirm the accuracy of accounting treatment of returned products; Perform a cut-off test on the receipt and delivery of inventory confirmed before and after the balance sheet date to check whether the inventory confirmation is included in the correct accounting period.
(2) Inventory falling price reserves
Evaluated and tested the internal control related to the inventory falling price reserve of Hongde Co., Ltd; Fully communicate with the company’s management on matters affecting asset impairment to understand whether there are signs of asset impairment; Obtained relevant information on the existence of asset impairment judged by the management; Check relevant inventory on site; The calculation method and process of net realizable value of inventory are reviewed. 4、 Responsibilities of management and governance for financial statements
The management of Hongde Co., Ltd. (hereinafter referred to as the management) is responsible for preparing the financial statements in accordance with the provisions of the accounting standards for business enterprises to achieve a fair reflection, and designing, implementing and maintaining necessary internal control so that the financial statements are free from material misstatement caused by fraud or error.
When preparing the financial statements, the management is responsible for evaluating the continuous operation ability of Hongde shares, disclosing matters related to continuous operation (if applicable), and applying the assumption of continuous operation, unless the management plans to liquidate Hongde shares, terminate operation or has no other realistic choice.
The governance layer of Hongde shares (hereinafter referred to as the governance layer) is responsible for supervising the financial reporting process of Hongde shares.
5、 Responsibilities of certified public accountants for the audit of financial statements
Hexin Certified Public Accountants (special general partnership) 3
Report of Jiangsu Hongde special parts Co., Ltd
Our goal is to obtain reasonable assurance on whether the financial statements as a whole are free from material misstatement due to fraud or error, and issue an audit report containing audit opinions. Reasonable assurance is a high-level assurance, but it does not guarantee that the audit performed in accordance with the audit standards will always be found when a major misstatement exists. Misstatement may be caused by fraud or error. If it is reasonably expected that the misstatement alone or in summary may affect the economic decisions made by the users of the financial statements based on the financial statements, the misstatement is generally considered to be significant.
In the process of auditing in accordance with the auditing standards, we use professional judgment and maintain professional suspicion. At the same time, we also carry out the following work:
(I) identify and assess the risks of material misstatement of financial statements due to fraud or error, design and implement audit procedures to deal with these risks, and obtain sufficient and appropriate audit evidence as the basis for issuing audit opinions. Since fraud may involve collusion, forgery, intentional omission, misrepresentation or override of internal control, the risk of failing to find major misstatement caused by fraud is higher than that caused by error.
(II) understand the internal control related to audit in order to design appropriate audit procedures, but the purpose is not to express opinions on the effectiveness of internal control.
(III) evaluate the appropriateness of accounting policies selected by the management and the rationality of accounting estimates and related disclosures.
(IV) draw a conclusion on the appropriateness of the management’s use of the going concern assumption. At the same time, according to the audit evidence obtained, draw a conclusion on whether there are major uncertainties in the matters or circumstances that may lead to major doubts about the sustainable operation ability of Hongde shares. If we conclude that there is significant uncertainty, the auditing standards require us to draw the attention of statement users to the relevant disclosures in the financial statements in the audit report; If the disclosure is insufficient, we should express a non unqualified opinion. Our conclusions are based on the information available as of the date of the audit report. However, future events or circumstances may lead to the non sustainable operation of Hongde shares.
(V) evaluate the overall presentation, structure and content of the financial statements, and evaluate whether the financial statements fairly reflect relevant transactions and events.
(VI) obtain sufficient and appropriate audit evidence on the financial information of entities or business activities in Hongde shares to express audit opinions on the financial statements. We are responsible for guiding, supervising and implementing the group audit, and take full responsibility for the audit opinions. We communicated with the management on the planned audit scope, schedule and major audit findings, including the internal control defects that we identified in the audit.
We also provide a statement to the management that we have complied with the professional ethics requirements related to independence and communicate with the management
Hexin Certified Public Accountants (special general partnership) 4
Report of Jiangsu Hongde special parts Co., Ltd
All relationships and other matters reasonably considered to affect our independence, as well as relevant preventive measures (if applicable).
From the matters communicated with the management, we determine which matters are the most important for the audit of the current financial statements, thus constituting key audit matters. We describe these matters in the audit report, unless laws and regulations prohibit public disclosure
