catalogue
1、 Audit report Page 1-8 II. Financial statements Page 9-16
(I) consolidated and parent company’s balance sheet Page 9-10
(II) consolidated and parent company’s income statement Page 11
(III) consolidated and parent company cash flow statement Page 12
(IV) consolidated and statement of changes in owner’s equity of the parent company Page 13-16 III. notes to financial statements Page 17-127
Audit report
TJS [2021] No. 7-57
Guangdong Fangyuan Environment Co.Ltd(688148) all shareholders:
1、 Audit opinion
We have audited the financial statements of Guangdong Fangyuan Environment Co.Ltd(688148) (hereinafter referred to as Fangyuan environmental protection company), including the consolidated and parent company’s balance sheets as of December 31, 2018, December 31, 2019 and December 31, 2020, 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 owner’s equity and notes to relevant financial statements for 2018, 2019 and 2020. In our opinion, the attached financial statements are prepared in accordance with the accounting standards for business enterprises in all major aspects, and fairly reflect the consolidated and parent company’s financial position of Fangyuan environmental protection company as of December 31, 2018, December 31, 2019 and December 31, 2020, as well as the consolidated and parent company’s operating results and cash flow in 2018, 2019 and 2020.
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 Fangyuan environmental protection company 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 financial statements of 2018, 2019 and 2020 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.
（1） Revenue recognition
1. Relevant accounting periods: 2018 and 2019
(1) Item description
See note 3 (22) and note 5 (2) 1 of the financial statements for relevant information disclosure.
Fangyuan environmental protection company is mainly engaged in the R & D, production and sales of lithium battery ternary cathode material precursors and nickel battery cathode materials, and mainly sells NCA / NCM ternary precursors and spherical nickel hydroxide and other products. From 2018 to 2019, the operating revenue of Fangyuan environmental protection company was 77176190802 yuan and 95114201388 yuan respectively.
The company’s sales model is divided into Chinese sales and export sales. The Chinese sales model also includes a small amount of consignment. The specific revenue recognition methods under different models are as follows:
Sales in China: the company has delivered the products to the buyer according to the agreement and signed by the customer or sent the products and received by the customer, and the amount of product sales revenue has been determined, the payment for goods has been recovered or the receipt certificate has been obtained, and the relevant economic benefits are likely to flow in, and the cost related to the products can be measured reliably. In the consignment mode, after obtaining the customer’s statement, the company recognizes the revenue according to the quantity and time of products used by the customer on the statement;
Export sales: the company has declared the products according to the agreement, obtained the bill of lading, and the amount of product sales revenue has been determined. The payment for goods has been recovered or the receipt certificate has been obtained, and the relevant economic benefits are likely to flow in. The cost related to the products can be measured reliably.
As operating revenue is one of the key performance indicators of Fangyuan environmental protection company, there may be inherent risks that the management of Fangyuan environmental protection company (hereinafter referred to as the management) may achieve specific goals or expectations through inappropriate revenue recognition. Therefore, we identified revenue recognition as a key audit matter.
(2) Audit response
For revenue recognition, our audit procedures mainly include:
1) Understand the key internal controls related to revenue recognition, evaluate the design of these controls, determine whether they are implemented, and test the operation effectiveness of relevant internal controls;
2) Check the sales contract, understand the main contract terms or conditions, and evaluate whether the revenue recognition method is appropriate; 3) Implement analysis procedures for operating revenue and gross profit margin on a monthly basis, products, customers, etc., identify whether there are significant or abnormal fluctuations, and find out the causes of fluctuations;
4) For domestic sales revenue, check the supporting documents related to revenue recognition by sampling, including sales contract, order, sales invoice, delivery document, delivery document, transportation document and customer sign in document; For export revenue, obtain the information of E-port and check it with the book records, and check the sales contract, export declaration form, freight bill of lading, sales invoice and other supporting documents by sampling;
5) Combined with the letter of accounts receivable, the current sales volume is confirmed to the main customers by sampling;
6) Conduct a cut-off test on the operating income recognized before and after the balance sheet date to evaluate whether the operating income is recognized in an appropriate period;
7) Obtain the sales return records after the balance sheet date and check whether there is any situation that does not meet the conditions for revenue recognition on the balance sheet date;
8) Check whether the information related to operating income has been properly presented in the financial statements.
2. Relevant accounting period: 2020
(1) Item description
See note 3 (22) and note 5 (2) 1 of the financial statements for relevant information disclosure.
The operating revenue of Fangyuan environmental protection company mainly comes from the R & D, production and sales of ternary cathode material precursor of lithium battery and cathode material of nickel battery. In 2020, the operating income of Fangyuan environmental protection company was 99266609566 yuan.
The company mainly sells NCA / NCM ternary precursors, spherical nickel hydroxide and other products, which belongs to the performance obligation at a certain point in time. The company’s sales model is divided into Chinese sales and export sales. The Chinese sales model also includes a small amount of consignment. The specific revenue recognition methods under different models are as follows:
Sales in China: the company has delivered the products to the customer according to the contract, and the customer has accepted the goods, has received the payment or obtained the collection certificate, and the relevant economic benefits are likely to flow in. The main risks and rewards of the ownership of the goods have been transferred, and the legal ownership of the goods has been transferred.
In the consignment mode, after obtaining the customer’s statement, the company recognizes the revenue according to the quantity and time of products used by the customer on the statement;
Export sales: the company has declared the products according to the contract, obtained the bill of lading, recovered the payment for goods or obtained the collection certificate, and the relevant economic benefits are likely to flow in. The main risks and rewards of commodity ownership have been transferred, and the legal ownership of commodities has been transferred.
As operating revenue is one of the key performance indicators of Fangyuan environmental protection company, there may be inherent risks for the management to achieve specific goals or expectations through inappropriate revenue recognition. Therefore, we identified revenue recognition as a key audit matter.
(2) Audit response
For revenue recognition, our audit procedures mainly include:
1) Understand the key internal controls related to revenue recognition, evaluate the design of these controls, determine whether they are implemented, and test the operation effectiveness of relevant internal controls;
2) Check the sales contract, understand the main contract terms or conditions, and evaluate whether the revenue recognition method is appropriate; 3) Implement analysis procedures for operating revenue and gross profit margin on a monthly basis, products, customers, etc., identify whether there are significant or abnormal fluctuations, and find out the causes of fluctuations;
4) For domestic sales revenue, check the supporting documents related to revenue recognition by sampling, including sales contract, order, sales invoice, delivery document, delivery document, transportation document and customer sign in document; For export revenue, obtain the information of E-port and check it with the book records, and check the sales contract, export declaration form, freight bill of lading, sales invoice and other supporting documents by sampling;
5) Combined with the letter of accounts receivable, the current sales volume is confirmed to the main customers by sampling;
6) Conduct a cut-off test on the operating income recognized before and after the balance sheet date to evaluate whether the operating income is recognized in an appropriate period;
7) Obtain the sales return records after the balance sheet date and check whether there is any situation that does not meet the conditions for revenue recognition on the balance sheet date;
8) Check whether the information related to operating income has been properly presented in the financial statements.
（2） Impairment of accounts receivable
1. Relevant fiscal year: 2018
(1) Item description
See note 3 (10) and note 5 (1) 4 of the financial statements for relevant information disclosure.
As of December 31, 2018, the book balance of accounts receivable of Fangyuan environmental protection company was RMB 15291944284, the bad debt provision was RMB 830984717, and the book value was RMB 14460959567.
For the accounts receivable that are tested for impairment by combination, the management divides the combination according to the aging basis, adjusts it based on the historical loss rate of the combination with similar credit risk characteristics and combined with the actual situation, estimates the present value of future cash flow, and determines the bad debt reserves that should be withdrawn.
As the amount of accounts receivable is significant and the impairment test of accounts receivable involves significant management judgment, we determine the impairment of accounts receivable as a key audit event.
(2) Audit response
For the impairment of accounts receivable, our audit procedures mainly include:
1) Understand the key internal controls related to the impairment of accounts receivable, evaluate the design of these controls, determine whether they have been implemented, and test the operation effectiveness of relevant internal controls;
2) Review the subsequent actual write off or reversal of accounts receivable for which bad debt reserves have been accrued in previous years, and evaluate the accuracy of previous forecasts of the management;
3) Review the relevant considerations and objective evidence of the management’s impairment test on accounts receivable, and evaluate whether the management has fully identified the accounts receivable that have been impaired;
4) Evaluate the rationality of the management’s classification of the combination according to the characteristics of credit risk for the accounts receivable that are tested for impairment by combination; Evaluate the rationality of the impairment test method of the management (including the withdrawal proportion of each combination of bad debt reserves determined according to the historical loss rate and relevant observable data reflecting the current situation); Test the accuracy and completeness of the data used by the management (including the aging of accounts receivable) and whether the calculation of bad debt reserves is accurate;
5) Check the post period collection of accounts receivable and evaluate the rationality of the management’s provision for bad debts of accounts receivable;
6) Check whether the information related to the impairment of accounts receivable has been properly presented in the financial statements.
2. Relevant accounting periods: 2019 and 2020
(1) Item description
See note 3 (9) and note 5 (1) 4 of the financial statements for relevant information disclosure.
As of December 31, 2019, the book balance of accounts receivable of Fangyuan environmental protection company was RMB 21190459615, the bad debt provision was RMB 1090790981, and the book value was RMB 20099668634.
As of December 31, 2020, the book balance of accounts receivable of Fangyuan environmental protection company was 18659 North Industries Group Red Arrow Co.Ltd(000519) yuan, the bad debt provision was 968423026 yuan, and the book value was 17690577493 yuan.
According to the credit risk characteristics of various accounts receivable and based on the combination of accounts receivable, the management measures its loss reserves according to the expected credit loss amount equivalent to the whole duration. For the accounts receivable whose expected credit loss is measured on the basis of portfolio, the management divides the portfolio based on the aging, refers to the historical credit loss experience, and adjusts it according to the forward-looking estimation, and prepares the comparison table between the aging of accounts receivable and the expected credit loss rate, so as to determine the accrued bad debt reserves.
As the amount of accounts receivable is significant and the impairment of accounts receivable involves significant management judgment, we determine the impairment of accounts receivable as a key audit event.
(2) Audit response
For the impairment of accounts receivable, our audit procedures mainly include:
1) Understand the key internal controls related to the impairment of accounts receivable, evaluate the design of these controls, determine whether they have been implemented, and test the operation effectiveness of relevant internal controls;
2) Review the subsequent actual write off or reversal of accounts receivable for which bad debt reserves have been accrued in previous years, and evaluate the accuracy of previous forecasts of the management;
3) Whether the management reviews the credit risk characteristics of accounts receivable and whether the management considers the appropriate credit risk of accounts receivable;
4) For accounts receivable whose expected credit loss is measured on the basis of portfolio, evaluate the rationality of the management’s division of portfolio according to the characteristics of credit risk; Evaluate the rationality of the comparison table between the aging of accounts receivable and the expected credit loss rate determined by the management based on historical credit loss experience and forward-looking estimation; Test the accuracy and completeness of the data used by the management (including accounts receivable aging, historical loss rate, migration rate, etc.) and whether the calculation of bad debt reserves is accurate;
5) Check the post period collection of accounts receivable and evaluate the rationality of the management’s provision for bad debts of accounts receivable;
6) Check whether the information related to the impairment of accounts receivable has been properly presented in the financial statements. 4、 Responsibilities of management and governance for financial statements
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 sustainable operation ability of Fangyuan environmental protection company, disclosing matters related to sustainable operation (if applicable), and applying the assumption of sustainable operation, unless liquidation is planned, operation is terminated or there is no other realistic choice.
Fangyuan environmental protection company
