China Merchants Securities Co.Ltd(600999) financial statements and audit report for the year ended December 31, 2021
Financial statements and audit report for the year ended December 31, 2021
Content page audit report 1 – 5 consolidated and parent company balance sheet 6 – 9 consolidated and parent company income statement 10 – 11 consolidated and parent company cash flow statement 12 – 13 consolidated and parent company’s statement of changes in shareholders’ equity 14 – 17 notes to financial statements 18 – 137
audit report
DSB (s) Zi (22) No. p01296 (Page 1 of 5) China Merchants Securities Co.Ltd(600999) all shareholders: I. audit opinion
We have audited the financial statements of China Merchants Securities Co.Ltd(600999) (hereinafter referred to as ” China Merchants Securities Co.Ltd(600999) “), including the consolidated and parent company’s balance sheet as of December 31, 2021, the consolidated and parent company’s income statement, consolidated and parent company’s cash flow statement, consolidated and parent company’s statement of changes in shareholders’ equity and notes to relevant financial statements in 2021.
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 consolidated and parent company’s financial position as of December 31, 2021, as well as the consolidated and parent company’s operating results and consolidated and parent company’s cash flow 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. In accordance with the code of professional ethics for Chinese certified public accountants, we are independent of China Merchants Securities Co.Ltd(600999) , 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
Key audit matters are the most important matters that we consider to be the audit of this year’s 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.
(I) consolidation of structured entities
China Merchants Securities Co.Ltd(600999) manages and invests in various structured entities in the process of conducting business, such as investment funds, asset management plans, trust products and partnerships. As mentioned in notes VIII, 1, (1) ② and VIII, 3, (1) of the financial statements, as of December 31, 2021, the total assets of the structured entities China Merchants Securities Co.Ltd(600999) included in the consolidation scope of the consolidated financial statements amounted to RMB 20.539 billion, and the total assets of the structured entities China Merchants Securities Co.Ltd(600999) initiated and established that were not included in the consolidation scope of the consolidated financial statements amounted to RMB 475795 billion. When determining whether the structured entity is included in the consolidation scope of the consolidated financial statements, China Merchants Securities Co.Ltd(600999) management makes a judgment on whether China Merchants Securities Co.Ltd(600999) controls the structured entity according to the relevant contract terms and the definition of “control” in the accounting standards for Business Enterprises No. 33 – consolidated financial statements (“consolidated financial statements standards”), including: China Merchants Securities Co.Ltd(600999) the power over structured products Whether the maximum risk exposure of the portfolio held by China Merchants Securities Co.Ltd(600999) together with the variable return generated by its manager’s remuneration and credit enhancement is significant enough to indicate that China Merchants Securities Co.Ltd(600999) controls these structured entities. Since the determination of whether the structured entity is included in the consolidation scope requires significant judgment by the management, and the results are widely related to the financial statements, we believe that this matter is a key audit matter in the audit of the consolidated financial statements.
Audit report – continued
DSB (s) Zi (22) No. p01296 (page 2 of 5) III. key audit matters – continued
(I) structured consolidation
For the merger of China Merchants Securities Co.Ltd(600999) structured entities, we implemented the following main audit procedures to deal with it: (1) understand the relevant internal control established by China Merchants Securities Co.Ltd(600999) in determining whether the structured entities are included in the consolidation scope of the consolidated financial statements, and test the implementation effectiveness of relevant internal control; (2) Select major structured entities, review relevant contracts, and evaluate whether the judgment made by the management meets the provisions of the consolidated financial statements standards; (3) Select samples to check whether the data used in the quantitative calculation of variable return undertaken or enjoyed by China Merchants Securities Co.Ltd(600999) is consistent with relevant contract agreements, and check the correctness of its calculation.
(II) provision of expected credit loss of stock pledge repurchase business under financed funds and purchase of resale financial assets
As stated in notes III, 8 and 7 of the financial statements, China Merchants Securities Co.Ltd(600999) the impairment of stock pledge repurchase business under financed funds and financial assets purchased for resale is measured by the expected credit loss model.
As stated in notes III, 31 and (3) of the financial statements, the measurement of expected credit loss involves significant accounting estimates and management judgment, mainly including the significant increase of credit risk, the use of credit impairment standards, models and assumptions, the determination of loss rate, etc.
The uncertainty in the judgment and estimation of expected credit losses has a significant impact on the book value of these assets. The total book value of these financial assets is RMB 112386 billion, accounting for 18.82% of the total assets at the end of China Merchants Securities Co.Ltd(600999) year. As stated in notes V, 3 and V and 9 to the financial statements, as of December 31, 2021, China Merchants Securities Co.Ltd(600999) recognized the credit loss of the financed funds of RMB 146 million, and the credit loss of the stock pledge repurchase business under the purchase of resale financial assets of RMB 741 million.
Since the measurement of the above credit impairment loss involves significant management judgment and estimation, and the amount of the above financial assets involved in the measurement of credit impairment loss is significant, we believe that this matter is a key audit matter in the audit of the consolidated and parent company’s financial statements. For China Merchants Securities Co.Ltd(600999) the above matters concerning the measurement of credit impairment loss of financial assets, we have implemented the following main audit procedures to deal with them: (1) understand China Merchants Securities Co.Ltd(600999) the internal control related to the provision for expected credit impairment, and test the effectiveness of the implementation of relevant internal control; (2) Evaluate the appropriateness of China Merchants Securities Co.Ltd(600999) expected credit loss model and key assumptions and parameters used, especially the loss rate, with the assistance of impairment experts in the firm; (3) Evaluate whether the management determines whether the standards of significant increase in credit risk and credit impairment are reasonable, and select samples to check whether the standards of significant increase in credit risk and credit impairment are correctly applied in the above financial assets; (4) Select samples and check whether the main data input values of the expected credit loss model are correct, including credit risk exposure and loss rate; (5) For financial assets with credit impairment, take samples to check whether the impairment provision calculated by the management based on the latest assessed value of the collateral and other estimated future cash flows is appropriate.
Audit report – continued
DSB (s) Zi (22) No. p01296 (page 3 of 5) III. key audit matters – continued
(III) fair value evaluation of level 3 financial assets
As mentioned in note IX and 1, as of December 31, 2021, China Merchants Securities Co.Ltd(600999) the financial assets measured at fair value and classified as level 3 were RMB 14.378 billion China Merchants Securities Co.Ltd(600999) uses valuation techniques involving a large number of input values to value the third level financial assets, some of which are not based on observable market data, including stock price volatility and liquidity discount. Since the management needs to make significant estimates and judgments on the significant unobservable input values used when valuing the third level financial assets, we believe that this matter is a key audit matter in the audit of the consolidated financial statements.
For the fair value evaluation of China Merchants Securities Co.Ltd(600999) third level financial assets, we implemented the following main audit procedures: (1) understand China Merchants Securities Co.Ltd(600999) the internal control related to the fair value evaluation of financial assets, and test the effectiveness of the implementation of relevant internal control; (2) Based on relevant standards and our understanding of industry practices, evaluate whether the model used by the management in the valuation of level 3 financial assets is appropriate; (3) Select samples, check the investment agreement for relevant financial assets, identify the terms related to the valuation of financial assets, and evaluate their application in the valuation process; (4) For the selected samples, evaluate whether the significant unobservable inputs and observable inputs used by the management in the valuation of the third level financial assets are appropriate; (5) Select samples, conduct independent valuation on the third level financial assets with the assistance of internal valuation experts of the firm, compare and analyze the independent valuation results with the valuation results of China Merchants Securities Co.Ltd(600999) to judge whether the valuation results of China Merchants Securities Co.Ltd(600999) are appropriate. 4、 Other information
China Merchants Securities Co.Ltd(600999) management is responsible for other information. Other information includes the information covered in the annual report, 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.
Audit report – continued
DSB (s) Zi (22) No. p01296 (page 4 of 5) v. responsibilities of management and governance for financial statements
China Merchants Securities Co.Ltd(600999) the management is responsible for preparing the financial statements in accordance with 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 due to fraud or error.
When preparing the financial statements, the management is responsible for evaluating the going concern ability of China Merchants Securities Co.Ltd(600999) and disclosing the matters related to going concern (if applicable), and applying the going concern assumption, unless the management plans to liquidate China Merchants Securities Co.Ltd(600999) , terminate the operation or has no other realistic choice.
The management is responsible for supervising the financial reporting process of China Merchants Securities Co.Ltd(600999) . 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 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.
(2) Understand the internal control related to audit to design appropriate audit procedures.
(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 China Merchants Securities Co.Ltd(600999) going concern ability. 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 not sufficient, we should publish a non disclosure statement
