Guangdong No.2 Hydropower Engineering Company Ltd(002060)
Internal control evaluation report in 2021
The company and all members of the board of directors guarantee that the information disclosed is true, accurate and complete without false records, misleading statements or major omissions Guangdong No.2 Hydropower Engineering Company Ltd(002060) 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 the company’s internal control system and evaluation methods, and based on the daily supervision and special supervision of internal control, we evaluated the effectiveness of the company’s internal control on December 31, 2021 (the 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 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, its wholly-owned subsidiaries and holding subsidiaries. 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: development, construction and management of water conservancy and hydropower, rail transit, clean energy power generation projects, corporate governance structure, internal control organization structure, internal audit control, supervision and inspection mechanism, risk assessment, management of subsidiaries and branches, internal control of major investment and external guarantee, internal control of related party transactions, internal control of information disclosure, Internal control, information and communication, internal supervision, etc. of the use and management of raised funds.
The high-risk areas of focus mainly include:
1. Internal control over wholly-owned and holding subsidiaries
In accordance with the company law, the securities law, the relevant provisions of China Securities Regulatory Commission and Shenzhen Stock Exchange and the articles of association, and in combination with the actual situation of the company, the company has formulated the management system of holding subsidiaries to control and manage wholly-owned and holding subsidiaries.
The company adheres to the standardized management mode of listed companies to manage wholly-owned and holding subsidiaries, and supervise, manage and guide the operation, finance, major investment, information disclosure, legal affairs and human resources of wholly-owned and holding subsidiaries. Strengthening the management of wholly-owned and holding subsidiaries is an important part of strengthening the company’s internal control. By strengthening the management and control of wholly-owned and holding subsidiaries, standardize their behavior, ensure their standardized operation and operation according to law, promote their healthy development and better protect the legitimate rights and interests of investors.
2. Internal control of external guarantee
According to the requirements of the notice on issues related to the provision of guarantees by listed companies for others and the notice on several issues related to the regulation of capital exchanges between listed companies and related parties and external guarantees by listed companies, the company describes the relevant business activities such as guarantee approval authority, risk assessment, guarantee implementation monitoring and disclosure process in the working rules of the general meeting of shareholders, the board of directors and the general manager at all levels, It basically covers all the guarantee activities of the company, makes detailed provisions on the authorization and approval systems of guarantee business, and the design of internal control system is sound and reasonable.
3. Internal control of foreign investment
The internal control of the company’s foreign investment follows the principles of legality, prudence, safety and effectiveness. Through the articles of association, investment management system and other systems, the company clearly stipulates the approval authority and deliberation procedures of the general meeting of shareholders and the board of directors for major investments. The company conducts special research and evaluation on the feasibility, investment risk, investment return and other matters of major investment projects. Before the review of major investment projects, the company will organize relevant principals and investment professionals to conduct on-site investigation and research. Once the project is successfully invested, the company will track the progress, investment risks and investment benefits of the project investment to ensure the smooth implementation of the investment project.
4. Internal control over connected transactions
The company’s articles of association, related party transaction management system and other systems specify the decision-making authority, approval procedures and disclosure requirements of related party transactions in detail. At the same time, the articles of association makes specific provisions to prevent major shareholders or actual controllers from occupying the funds of listed companies, and defines the legal obligations of directors, supervisors and senior managers to maintain the safety of the company’s funds. For related party transactions, the company strictly follows the regulations of China Securities Regulatory Commission, Shenzhen Stock Exchange, articles of association, management system of related party transactions and other systems, performs relevant examination and approval procedures, timely makes information disclosure, gives full play to the audit role of independent directors, audit committee and internal audit institution, strengthens the company’s internal control over related party transactions, and ensures the safety of the company’s funds and property.
5. Internal control of information disclosure
In accordance with the company law, the articles of association and relevant regulations of China Securities Regulatory Commission and Shenzhen Stock Exchange, the company has formulated the information disclosure management system in combination with the actual situation of the company, defined the responsibilities of the company’s information disclosure management department, responsible person and obligor, and strictly stipulated the contents, standards, report circulation process, audit and disclosure procedures of information disclosure. Information that may have a significant impact on the production and operation of the company and have a significant impact on the stock price of the company shall be disclosed by the company in accordance with the stock listing rules of Shenzhen Stock Exchange and the information disclosure management system of the company.
6. Internal control over the use and management of raised funds
In order to standardize the management of the company’s raised funds, strengthen the legitimacy, effectiveness and safety of the management of raised funds, improve the use efficiency of raised funds and safeguard the legitimate rights and interests of all shareholders, the company has formulated the management system for the use of raised funds and the management system for the use of bond raised funds in accordance with the relevant provisions of Shenzhen Stock Exchange to control the use and management of raised funds.
（2） Internal control evaluation basis and internal control defect identification standard 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 and rules, such as the stock listing rules of Shenzhen Stock Exchange, the basic norms of enterprise internal control, the guidelines for the standardized operation of listed companies of Shenzhen Stock Exchange and so on.
According to the identification requirements of the enterprise internal control standard system for major defects, important defects and general defects, and in combination with factors such as the company’s size, industry characteristics, risk preference and risk tolerance, the board of directors of the company distinguished internal control over financial reports from internal control over non-financial reports, studied and determined specific identification standards for internal control defects applicable to the company, which were consistent with those in 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
The quantitative criteria for the evaluation of internal control defects in financial reporting determined by the company are as follows:
The defects of internal control over financial reporting are divided into major defects, important defects and general defects.
When the existence of one or a group of internal control defects has a reasonable possibility that it is impossible to prevent or find any misstatement greater than or equal to 1% of the company’s total annual assets, 1% of operating revenue or 10% of net profit in the financial report in time, it is recognized as a major defect;
When the existence of one or a group of internal control defects has a reasonable possibility to prevent or find the misstatement of the financial statements listed below in the financial report in time, it is recognized as an important defect: misstatement less than 1% of the company’s annual total assets but greater than or equal to 0.5% of the company’s annual total assets; When it is less than 1% of the company’s annual operating revenue, but greater than or equal to 0.5% of the company’s total annual operating revenue; An misstatement less than 10% of the company’s annual net profit but greater than 5% of the company’s annual net profit is recognized as an important defect;
Defects other than those that do not constitute major defects and important defects are recognized as general defects.
The qualitative criteria for the evaluation of internal control defects in financial reporting determined by the company are as follows:
Signs of significant deficiencies in financial reporting include:
(1) Fraud of directors, supervisors and senior managers of the company;
(2) Material misstatement in the current financial report found by the certified public accountant but not identified by the company’s internal control;
(3) The supervision of the audit committee and the audit department on the company’s external financial report and internal control of financial report is invalid;
(4) Invalid control environment;
(5) Once the major defects found and reported to the management are not corrected within a reasonable time;
(6) Administrative penalties imposed by securities regulatory authorities due to accounting errors.
Signs of significant deficiencies in financial reporting include:
(1) Failure to select and apply accounting policies in accordance with GAAP;
(2) Failure to establish anti fraud procedures and control measures;
(3) No corresponding control mechanism has been established or implemented for the accounting treatment of unconventional or special transactions, and there is no corresponding compensatory control;
(4) 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 goal of authenticity and accuracy;
(5) It has been reported to the management, but after a reasonable period of time, the management still fails to correct the important defects;
(6) Failure of compliance supervision function and violation of laws and regulations may have a significant impact on the reliability of financial reporting.
In addition to the above major defects and important defects, other control defects are recognized as general defects in financial reporting.
2. Identification standard of internal control defects in non-financial reporting
The defects of internal control over non-financial reporting are divided into major defects, important defects and general defects.
The quantitative criteria for the evaluation of internal control defects in non-financial reporting determined by the company are as follows:
When the existence of one or a group of internal control defects has a reasonable possibility of causing the company’s direct property loss of more than 10 million yuan, it is recognized as a major defect; When the existence of one or a group of internal control defects has a reasonable possibility of causing the company’s direct property loss of more than 5 million yuan, but less than 10 million yuan, it is recognized as an important defect;
Defects other than those that do not constitute major defects and important defects are recognized as general defects.
The qualitative criteria for the evaluation of internal control defects in non-financial reporting determined by the company are as follows:
Qualitative criteria for major defects in internal control over non-financial reporting:
(1) The results of internal control evaluation, especially major or important defects, have not been rectified;
(2) Lack of institutional control or systematic failure of important business;
(3) Serious violations and heavy penalties or criminal responsibility;
(4) Negative news spreads all over the country, causing significant damage to the enterprise’s reputation;
(5) Middle and senior managers or key technical personnel have lost one after another;
(6) Violation of national laws and regulations, such as unqualified project quality;
Qualitative criteria for significant defects in internal control over non-financial reporting:
(1) Unable to achieve some operational objectives or key performance indicators, and significantly exceeding the budget in terms of time, manpower or cost;
(2) Serious loss of business personnel in key positions;
(3) Violating the internal rules and regulations of the enterprise and causing great losses;
(4) There are important defects in important business systems or systems, and there is no corresponding compensatory control.
Other control defects other than major defects and important defects in non-financial reports are recognized as general defects.
(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 did not have 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. 4、 Description of other major matters related to internal control
The company has no explanation on other major matters related to internal control.
It is hereby announced.
Chairman (authorized by the board of directors): Xie Yanhui
Guangdong No.2 Hydropower Engineering Company Ltd(002060)
March 29, 2022
