Huabao Flavours & Fragrances Co.Ltd(300741)
Annual financial report for 2021
March 2022
1、 Audit report
Unqualified opinion of audit opinion type standard
Signing date of audit report: March 25, 2022
Name of Auditor: PricewaterhouseCoopers Zhongtian Certified Public Accountants (special general partnership)
Audit Report No.: PwC ztsz (2022) No. 10051
Name of certified public accountant Cao Cuili and Wu Xiaoquan
Body of audit report
Huabao Flavours & Fragrances Co.Ltd(300741) all shareholders:
1、 Audit opinion
(I) contents of our audit
We have audited the financial statements of Huabao Flavours & Fragrances Co.Ltd(300741) (hereinafter referred to as ” Huabao Flavours & Fragrances Co.Ltd(300741) company”), including the consolidated and company’s balance sheet as of December 31, 2021, the consolidated and company’s income statement, consolidated and company’s cash flow statement, consolidated and company’s statement of changes in shareholders’ equity and notes to financial statements in 2021.
（2） Our opinion
In our opinion, the attached financial statements are prepared in accordance with the provisions of the accounting standards for business enterprises in all material aspects and fairly reflect the consolidated and financial position of Huabao Flavours & Fragrances Co.Ltd(300741) company as of December 31, 2021 and the consolidated and operating results and cash flow of the company in 2021.
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. We believe that the audit evidence we have obtained is sufficient and appropriate, which provides a basis for our audit opinion.
In accordance with the code of professional ethics for Chinese certified public accountants, we are independent of Huabao Flavours & Fragrances Co.Ltd(300741) company and have fulfilled other responsibilities in terms of professional ethics.
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. The key audit event identified in our audit is goodwill impairment.
Key audit matters how do we deal with key audit matters in the audit
Goodwill impairment our procedures for assessing the goodwill impairment of the management include:
As shown in financial report VII (28), Huabao Flavours & Fragrances Co.Ltd(300741) company and its subsidiaries understand, evaluate and test the internal control related to goodwill impairment, and the book value of goodwill arising from acquisition in the previous year as of December 31, 2021 is the level by considering the degree of estimation uncertainty and other inherent risk factors, such as RMB 1194550741. The amount of goodwill impairment provision deducted is people’s complexity, subjectivity Change and sensitivity to management bias or fraud: RMB 365587. The inherent risk of material misstatement;
Huabao Flavours & Fragrances Co.Ltd(300741) the management of the company evaluates the rationality of the prediction made by the management based on the international performance of assets according to the accounting policy described in financial report V (31) – we compare the prediction in the model of the previous year with the business strategy of the current year and the important accounting estimates and judgments described in financial report V (43); The net amount of fair value minus disposal expenses and the estimated future cash flow of assets – we evaluate the appropriateness of asset group recognition and goodwill allocation; The higher of the present value of the two is regarded as the recoverable amount, and whether the provision for impairment of goodwill needs to be made at least annually. After evaluation, the management estimates the future cash – we obtain the evaluation report issued by the independent evaluation agency hired by the management;
To determine the collectability of the asset group and asset group combination containing goodwill based on the present value of flow – we believe that there is no need to make provision for impairment of goodwill for the independence, professional competence and objective return amount of independent evaluation institutions. Evaluate the cash flow in the future;
In the calculation of the value, the key assumptions adopted by the management include: – with the assistance of internal experts, we evaluated the appropriateness of the test method of goodwill minus income growth rate (including growth rate in the forecast period and growth rate in the stable period) adopted by the management;
Gross profit margin – we compared the gross profit margin and pre tax discount rate of income growth used in the future cash flow forecast with the historical gross profit margin and income growth rate of Huabao Flavours & Fragrances Co.Ltd(300741) company, and considered the market trend;
As the amount of goodwill is significant and the impairment assessment involves the management’s evaluation of future operations
For the major judgment and estimation of the situation, we regard the impairment of goodwill as the key audit matter – we refer to the situation of comparable companies by comparing industry and market data. (such as capital structure, etc.) and in combination with the specific conditions of each asset group and asset group portfolio, recalculate the weighted average capital cost of each asset group and asset group portfolio to evaluate the rationality of the pre tax discount rate adopted by the management;
– we evaluated the sensitivity analysis of the management on key assumptions (including income growth rate in the forecast period, income growth rate in the stable period, gross profit margin and pre tax discount rate) We also considered whether the judgment made in the selection of data may indicate the existence of management bias;
– we tested the calculation accuracy in the calculation of the present value of future cash flow;
– we assessed the adequacy of the disclosures relating to impairment of goodwill.
Based on the results of the above audit work, we find that the significant judgment made by the management in the impairment assessment of goodwill can be supported by the evidence we have obtained.
4、 Other information
The management of Huabao Flavours & Fragrances Co.Ltd(300741) company is responsible for other information. Other information includes the information covered in the 2021 annual report of Huabao Flavours & Fragrances Co.Ltd(300741) company, but does not include the financial statements and our audit report.
Our audit opinion on the financial statements does not cover other information, and we will not issue any form of assurance conclusion on other information.
In combination with our audit of the financial statements, our responsibility is to read other information and consider whether other information is materially inconsistent with the financial statements or the information we have learned in the audit process, or there seems to be material misstatement. Based on the work we have performed, if we determine that there is a material misstatement in other information, we should report that fact. In this regard, we have nothing to report.
5、 Responsibilities of management and the Audit Committee for the financial statements
Huabao Flavours & Fragrances Co.Ltd(300741) the management of the company 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 sustainable operation ability of Huabao Flavours & Fragrances Co.Ltd(300741) company, disclosing matters related to sustainable operation (if applicable), and applying the assumption of sustainable operation, unless the management plans to liquidate Huabao Flavours & Fragrances Co.Ltd(300741) company, terminate operation or have no other realistic choice.
The audit committee is responsible for supervising the financial reporting process of Huabao Flavours & Fragrances Co.Ltd(300741) company.
6、 Responsibilities of certified public accountants for the audit of financial statements
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 carrying out the audit work in accordance with the audit standards, we use professional judgment and maintain professional doubt. At the same time, we also carry out the following work:
（1） Identify and assess the risk of material misstatement of financial statements due to fraud or error; The audit evidence shall be taken as the basis for the audit, and the audit opinions shall be adequately designed and implemented to deal with these audit risks. 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.
（2） Understand the internal control related to audit in order to design appropriate audit procedures, but the purpose is not to express an opinion on the effectiveness of internal control.
（3） Evaluate the appropriateness of accounting policies selected by the management and the rationality of accounting estimates and related disclosures.
（4） Draw conclusions on the appropriateness of management’s use of going concern assumptions. 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 Huabao Flavours & Fragrances Co.Ltd(300741) company. 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 cause Huabao Flavours & Fragrances Co.Ltd(300741) company to be unable to continue its business.
（5） Evaluate the overall presentation (including disclosure), structure and content of the financial statements, and evaluate whether the financial statements fairly reflect relevant transactions and events.
（6） Obtain sufficient and appropriate audit evidence on the financial information of entities or business activities in Huabao Flavours & Fragrances Co.Ltd(300741) company to express audit opinions on the consolidated 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 Audit Committee on the planned audit scope, schedule and major audit findings, including the noteworthy internal control defects identified in the audit.
We also provide the audit committee with a statement that we have complied with the professional ethics requirements related to independence, and communicate with the audit committee all relationships and other matters that may reasonably be considered to affect our independence, as well as relevant preventive measures (if applicable).
From the matters communicated with the audit committee, we determine which matters are 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 the public disclosure of these matters, or in rare cases, if the negative consequences of communicating a matter in the audit report are reasonably expected to exceed the benefits in the public interest, we determine that we should not communicate the matter in the audit report.
PricewaterhouseCoopers Zhongtian certified public accountant
Accounting firm (special general partnership)
Cao Cuili (project partner)
Shanghai, China
March 25, 2022 certified public accountant
Wu Xiaoquan
