Huabao Flavours & Fragrances Co.Ltd(300741)
Internal control evaluation report in 2021
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 Huabao Flavours & Fragrances Co.Ltd(300741) (hereinafter referred to as the “company”) internal control system and evaluation methods, on the basis of daily and special supervision of internal control, The audit department evaluated the effectiveness of the company’s internal control on December 31, 2021 (benchmark date of 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 other than Mr. Lin Jiayu 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 the company and its subordinate enterprises and branches. 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 company’s consolidated financial statements.
The main businesses and matters included in the evaluation scope include: organizational structure, development strategy, human resources, social responsibility, corporate culture, capital activities, procurement business, asset management, sales business, research and development, engineering projects, financial reports, comprehensive budget, contract management, internal information transmission, information system, etc; The high-risk areas of focus mainly include: capital activities, procurement business, asset management, sales business, engineering projects, financial reports, contract management, 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 enterprise internal control standard system and the requirements of relevant laws, regulations, rules and regulations such as the guidelines for self discipline supervision of Listed Companies in Shenzhen Stock Exchange No. 2 – standardized operation of companies listed on GEM.
The board of directors of the company distinguished the internal control of financial report from the internal control of non-financial report according to the identification requirements for major defects, important defects and general defects of the enterprise internal control standard system, combined with the factors such as the company’s size, industry characteristics, risk preference and risk tolerance, and studied and determined the specific identification standards of internal control defects applicable to the company, which are consistent with the previous years. The identification standards of internal control defects determined by the company are as follows: 1. Identification standards of internal control defects in financial reports
The identification criteria for defects in internal control over financial reporting determined by the company are as follows:
Recognition standard in financial report
Quantitative and qualitative standards for control defects of the Department
Identification standard
The amount resulting in misstatement in the financial statements includes but is not limited to:
Between: fraud by directors, supervisors and senior managers; Misstatement ≥ 2% of operating income; The company found major misstatement in previous years ≥ 3% of total profits; Accounting errors and correction of disclosed financial reports;
Major defect misstatement ≥ 0.5% of total assets. The audit committee and internal audit institutions have no effect on the supervision of internal control;
The certified public accountant found that there were significant errors and omissions in the financial report of the current year, and the internal control operation failed to find such errors and omissions.
Recognition standard in financial report
Quantitative and qualitative standards for control defects of the Department
Identification standard
The amount resulting in misstatement in the financial statements includes but is not limited to:
Between: failure to select and apply 0.5% of operating revenue in accordance with GAAP ≤ misstatement ＜ operating accounting policies;
2% of income; Failure to establish anti fraud procedures and control measures; 1% of the total profit ≤ misstatement ＜ 3% of the total important defects of the accounting department for unconventional or special transactions; The manager has not established a corresponding control mechanism or has not implemented 0.2% of the total assets ≤ misstatement ＜ assets
0.5% of the total.
And there is no corresponding compensatory control;
There are one or more defects in the control of the financial reporting process at the end of the period, and it can not reasonably ensure that the prepared financial statements achieve the true and complete goal.
The amount causing misstatement in the financial statements is in the following areas:
Between: other general defects that do not constitute major defects and important defect standards, false or omitted reporting ＜ 0.5% of operating revenue; Internal control deficiencies.
Misstatement ＜ 1% of total profit;
Misstatement ＜ 0.2% of total assets.
2. Identification standard of internal control defects in non-financial reporting
The identification criteria of internal control defects in non-financial reporting determined by the company are as follows:
Recognition standard of non-financial Report
Lack of quantitative and qualitative standards for internal control
Identification standard of subsidence
The amount resulting in misstatement in the financial statements includes but is not limited to:
Interval: major mistakes caused by insufficient decision-making;
Misstatement ≥ 2% of operating income; Violation of national laws and regulations and major defects, misstatement ≥ 3% of total profits; Punishment;
Misstatement ≥ 0.5% of total assets. Serious loss of middle and senior managers and senior technicians;
The results of internal control evaluation, especially major defects, have not been rectified.
The amount resulting in misstatement in the financial statements includes but is not limited to:
Range: inadequate decision-making procedures lead to 0.5% of general operating income ≤ false and underreported ＜ sexual errors;
2% of operating income; Violation of the company’s internal rules and regulations, resulting in major defects, 1% of the total profit ≤ false and omitted report ＜ loss of profit amount;
3% of the total profit; The results of internal control evaluation, especially 0.2% of the total amount of heavy assets ≤ errors and omissions ＜ major defects, have not been rectified.
0.5% of total assets.
The amount of misstatement in the financial statements is as follows:
Range: for those that do not constitute the standard of major defects and important defects, the general defect misstatement is less than 0.5% of the operating revenue; He has deficiencies in internal control.
Misstatement ＜ 1% of total profit;
Misstatement ＜ 0.2% of total assets.
(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 has no 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.
(IV) description of other major matters related to internal control
The company has no explanation on other major matters related to internal control.
Huabao Flavours & Fragrances Co.Ltd(300741) board of directors
March 25, 2022
