Internal control evaluation report in 2021
Shantui Construction Machinery Co.Ltd(000680) all shareholders:
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 Shantui Construction Machinery Co.Ltd(000680) (hereinafter referred to as the "company") internal control system and evaluation methods, on the basis of daily and special supervision of internal control, We evaluated the effectiveness of the company's internal control as of 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 of the company guarantee that there are no false records, misleading statements or major omissions in this report, and bear individual and joint legal liabilities for the authenticity, accuracy and completeness 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, the company has no major defects in the internal control over financial reporting on the benchmark date of the internal control evaluation report. The board of directors of the company believes that the company has maintained effective internal control over financial reporting in all major aspects in accordance with the requirements of the enterprise 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
（1） Scope of internal control evaluation
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 headquarters, No. 1 main engine plant, No. 2 main engine plant, post market development department, Research Institute, crawler chassis branch, transmission branch, Marketing Corporation, Shandong Shantui engineering machinery import and Export Co., Ltd., Shandong Shantui Yatuo Machinery Co., Ltd., Shantui Jianyou Machinery Co., Ltd. and Shandong Shantui Logistics Co., Ltd. The total assets of the units included in the evaluation scope at the end of 2020 accounted for 92.94% of the total assets in the company's consolidated financial statements in 2020, and the total operating revenue in 2020 accounted for 93.16% of the total operating revenue in the company's consolidated financial statements in 2020.
The main businesses and matters included in the evaluation scope include: organizational structure, development strategy, human resources, social responsibility, corporate culture, capital activities, asset management, procurement, sales, R & D, engineering projects, guarantee business, financial report, budget management, contract management, information system, information and communication, risk assessment, internal supervision, etc.
The high-risk areas of focus mainly include:
Capital activities: unreasonable capital allocation and poor operation may lead to the company's financial difficulties or capital redundancy; Lax control of capital activities may lead to misappropriation, embezzlement, withdrawal or fraud of funds.
Asset management: overstock or shortage of inventory, which may lead to excessive occupation of working capital, depreciation of inventory value or interruption of production; Insufficient renewal and transformation of fixed assets, low use efficiency, improper maintenance and overcapacity may lead to lack of competitiveness, devaluation of asset value or waste of resources; Intangible assets lack core technology and backward technology, which may lead to the lack of sustainable development ability of enterprises.
Procurement business: unreasonable procurement plan and inaccurate prediction of market change trend, resulting in inventory shortage or backlog, which may lead to stagnation of enterprise production or waste of resources; Improper supplier selection, unreasonable procurement method, unscientific bidding or pricing mechanism, and nonstandard authorization and approval may lead to the second highest purchase qualification, fraud or fraud; The purchase acceptance is not standardized and the payment review is not strict, which may lead to the loss of purchased materials, funds or credit damage.
Guarantee business: poor monitoring of the guaranteed's financial difficulties or business difficulties and improper response measures may lead to the enterprise's legal liability.
Sales business: improper sales policies and strategies, inaccurate market forecasts and improper management of sales channels may lead to poor sales, overstock of inventory and unsustainable operation; Customers' credit management is not in place, the settlement method is not properly selected, and the account recovery is not effective, which may lead to the failure to recover the sales payment or fraud.
Human resources: lack or surplus of human resources, unreasonable structure and imperfect development mechanism may make it difficult to realize the enterprise development strategy; Unreasonable incentive and restraint system of human resources and imperfect management of personnel in key positions may lead to brain drain, low operation efficiency or disclosure of key technologies and trade secrets; Improper exit mechanism of human resources may lead to legal proceedings or damage to corporate reputation.
Research and development: research projects without scientific demonstration or insufficient demonstration may lead to insufficient innovation or waste of resources; Unreasonable allocation of R & D personnel or poor management of R & D process may lead to high R & D cost, fraud or R & D failure; Insufficient transformation and application of research results and ineffective protection measures may damage the interests of enterprises.
Engineering project: lack of feasibility study for project initiation or feasibility study is a mere formality, improper decision-making and blind launch may lead to difficulty in realizing the expected benefits or project failure; There are commercial bribes in the black box operation of project bidding, which may make it virtually difficult for the bid winner to bear the project, the bid winning price is untrue and relevant personnel are involved in the case; Asymmetric information of project cost, non implementation of technical scheme and deviation of budget from reality may lead to out of control of project investment; The inferior quality and high price of engineering materials, inadequate engineering supervision and non implementation of project funds may lead to poor engineering quality, delay or interruption of progress; The completion acceptance is not standardized and the final control is not strict, which may lead to major hidden dangers after the project is delivered for use.
Contract management: the legal rights and interests of the enterprise may be infringed if the contract is not concluded, the contract is concluded without authorization, the subject qualification of the other party of the contract does not meet the requirements, and there are major omissions and fraud in the contract content; Failure to fully perform the contract or improper monitoring may lead to failure of corporate litigation and damage to economic interests; Improper handling of contract disputes may damage the interests, reputation and image of the enterprise.
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.
（2） Basis of internal control evaluation and identification standard of internal control defects
According to the enterprise internal control standard system and relevant requirements of the CSRC, combined with the enterprise internal control system and evaluation methods, and on the basis of daily and special supervision of internal control, the company organized and carried out evaluation on the effectiveness of the design and operation of internal control related to the company's financial report as of December 31, 2021.
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 criteria for defects in internal control over financial reporting:
(1) The quantitative criteria for the evaluation of internal control defects in financial reporting determined by the company are as follows:
General defects, important defects and major defects of the project
Potential misstatement of total profit ＜ 3% of total profit (absolute value) ≥ 3% of total profit (absolute value) ≤ 5% of total profit ＜ 5% of total profit
Potential misstatement of total assets ＜ 0.3% of total assets ≤ misstatement ＜ misstatement ≥ total assets
0.5% 0.5% of the total assets misstated
Potential misstatement of operating income ＜ 0.3% of total operating income ≤ misstatement ≥ total operating income
Report 0.3% of the misstatement amount ＜ 0.5% of the total operating income
(2) The qualitative criteria for the evaluation of internal control defects in financial reporting determined by the company are as follows:
Material defect: if an internal control defect, alone or in combination with other defects, has a reasonable possibility to prevent, detect and correct the material misstatement in the financial report in time, the defect is recognized as a material defect. The following indications usually indicate that there may be significant defects in internal control, including but not limited to:
\uf0d8 the company's control environment is invalid;
\uf0d8 fraud of directors, supervisors and senior management;
\uf0d8 the risk management function is invalid, and major risks are not found or effectively dealt with in time;
\uf0d8 the company corrects the published financial statements;
\uf0d8 there are significant misstatements in the current financial statements, but the internal control fails to find such misstatements in the operation process;
\uf0d8 the supervision of internal control by the audit committee or internal audit function is invalid;
\uf0d8 major defects are not rectified in time within a reasonable period.
Important defect: if an internal control defect, alone or in combination with other defects, has a reasonable possibility to prevent, detect and correct the misstatement in the financial report that does not reach or exceed the importance level but should still attract the attention of the board of directors and management, the defect shall be recognized as an important defect. Generally, there are important signs of internal control, but they may not be limited to the following:
\uf0d8 the company has established an internal control environment, but there are some deficiencies;
\uf0d8 the anti fraud procedures and control measures are not perfect, which may lead to important misstatement;
\uf0d8 the risk management function of the company is weak, and it is difficult to perform the function;
\uf0d8 the company fails to select and apply accounting policies in accordance with generally accepted accounting standards, and there are important misstatements in financial or management reports, which have a certain impact on report users, but the misstatements are not found during the operation of internal control;
Poor supervision and evaluation of internal control;
\uf0d8 although internal control defects have been rectified, they fail to fully meet the expected objectives of rectification.
General defects: internal control defects that do not constitute major defects and important defects shall be recognized as general defects.
2. Identification criteria for defects in internal control over non-financial reporting:
(1) The quantitative standard for the evaluation of internal control defects in non-financial reporting determined by the company takes the total profit and total assets as the measurement indicators. The details are as follows:
The losses that may be caused or caused by internal control defects are related to the profit statement, which shall be measured by the total profit index. If the amount of financial report misstatement that may be caused by the defect alone or together with other defects is set to a, then:
General defects, important defects and major defects of the project
Misstatement amount a ＜ 3% of total profit (absolute value) ≤ a a ≥ 3% of total profit (absolute value) ＜ 5% of total profit (absolute value)
Losses that may be caused or caused by internal control defects related to asset management shall be measured by the total asset index.
If the amount of financial report misstatement that may be caused by the defect alone or together with other defects is set to B, then:
General defects, important defects and major defects of the project
Misstatement amount B ＜ 0.3% of total assets ≤ B ＜ total assets B ≥ 0.5% of (b) 0.3% of total assets
(2) The qualitative criteria for the evaluation of internal control defects in non-financial reporting determined by the company are as follows:
Major defect: if the possibility of the defect is high, which will seriously reduce the work efficiency or effect, or seriously increase the uncertainty of the effect, or make it seriously deviate from the expected goal, it will be recognized as a major defect. The following indications usually indicate that there may be significant defects in internal control, including but not limited to:
\uf0d8 the company lacks democratic decision-making procedures or unscientific decision-making procedures;
\uf0d8 the company's operation violates national laws and regulations, such as environmental pollution, ineffective protection of employees' rights and interests, etc;
\uf0d8 the main business management or operation personnel are obviously incompetent;
\uf0d8 serious loss of management or technical personnel in key positions;
\uf0d8 major negative news in major media has a continuous adverse impact on the company's social reputation and brand image, resulting in heavy losses to the company;
\uf0d8 major production and operation accidents, such as safety production, cause long-term or continuous interruption of the company's production and operation, resulting in heavy losses;
\uf0d8 lack of system control or systematic failure of important business, which has a significant impact on multiple or overall operations of the enterprise.
Important defect: if the possibility of defect occurrence is high, which will significantly reduce the work efficiency or effect, or significantly increase the uncertainty of the effect, or significantly deviate from the expected goal, it is recognized as an important defect. The following indications usually indicate that there may be significant defects in internal control, including but not limited to:
\uf0d8 there are many imperfections in the company's decision-making procedures and low support for management decision-making;
\uf0d8 the loss of management or technical personnel of the company is large, which has a great negative impact on the normal business;
\uf0d8 insufficient competence of key business management or operators, which has a great negative impact on normal business; \uf0d8 there are a lot of negative news in the main media, which is harmful to the company's social media in a certain area
