audit report
Dhsz [2022] 005316
Dahua Certified Public Accountants (special general partnership)
Da Hua Certified Public Accountants（Special General Partnership）
Audit report and financial statements
(from January 1, 2021 to December 31, 2021)
Contents page I. audit report 1-7 II. Audited financial statements
Consolidated balance sheet 1-2 consolidated income statement 3
Consolidated cash flow statement 4
Consolidated statement of changes in shareholders’ equity 5-6 balance sheet of parent company 7-8 profit statement of parent company 9
Cash flow statement of parent company 10 statement of changes in shareholders’ equity of parent company 11-12 notes to financial statements 1-101
Dahua Certified Public Accountants (special general partnership)
12 / F, building 7, yard 16, Middle West Fourth Ring Road, Haidian District, Beijing [100039]
Tel: 86 (10) 58350011 Fax: 86 (10) 58350006
www.dahua-cpa. com.
Audit report
Dhsz [2022] 005316 Xgd Inc(300130) all shareholders:
1、 Audit opinion
We have audited the financial statements of Xgd Inc(300130) (hereinafter referred to as Xgd Inc(300130) joint stock company), 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 provisions of the accounting standards for business enterprises in all material aspects and fairly reflect the consolidated and parent company’s financial position of Xgd Inc(300130) joint stock company as of December 31, 2021 and the consolidated and parent company’s operating results and 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 Xgd Inc(300130) joint stock 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 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.
We confirm that the following matters are the key audit matters that need to be communicated in the audit report. 1. Recognition of revenue related to commodity sales, receipt and value-added service business
2. Impairment of goodwill
（1） Recognition of revenue related to commodity sales, receipt and value-added service business
1. Event description
Please refer to note IV (XXXII) and note VI and note 38 of the consolidated financial statements for the revenue recognition policy and carrying amount. The operating revenue of Xgd Inc(300130) joint stock company in 2021 was 361173860663 yuan, including 101633826455 yuan of commodity sales revenue; The revenue from acquiring and value-added services was 237200944303 yuan, accounting for 93.81% of the total operating revenue. Since revenue is one of the key performance indicators of Xgd Inc(300130) joint stock company, there is an inherent risk that the management of Xgd Inc(300130) joint stock company (hereinafter referred to as the management) manipulates the time point of revenue recognition in order to achieve specific goals or expectations. Therefore, we recognize the recognition of commodity sales and receipt business revenue of Xgd Inc(300130) joint stock company as a key audit matter.
2. Audit response
(1) Our important procedures for commodity sales revenue include:
① Understand and test the management’s internal control related to commodity sales revenue to evaluate the design and operation effectiveness of revenue recognition internal control;
② Evaluate whether the recognition time point of relevant business income complies with the provisions of the accounting standards for business enterprises by checking the main sales contracts;
③ Inquire the relevant personnel of Xgd Inc(300130) joint stock company by inquiring the industrial and commercial data of the customer to confirm whether the customer has an association relationship with Xgd Inc(300130) joint stock company;
④ Select samples to check the supporting documents related to revenue recognition, including sales contract, sales invoice, delivery order, customer receipt, export declaration form, transportation document, etc;
⑤ Combined with accounts receivable, the letter confirmation procedure is implemented for customers to select samples.
⑥ Check the relevant supporting documents for the sales revenue recognized before and after the balance sheet date to assess whether the sales revenue is recognized in an appropriate period.
(2) The important audit procedures we have implemented for the revenue from acquiring and value-added services include:
① Understand and test the management’s internal control related to the revenue recognition of acquiring and value-added service business, so as to evaluate the design and operation effectiveness of the internal control of revenue recognition;
② Performed it test for acquiring business system;
③ Evaluate whether the recognition time point of relevant business income complies with the provisions of the accounting standards for business enterprises by asking the management and checking the main contracts;
④ Select samples to check the supporting documents related to revenue recognition, including: compare whether the UnionPay reconciliation document is consistent with the business daily report, whether the book confirmed revenue is consistent with the data of the acquiring business system, whether the merchant transaction flow and accounts payable are consistent with the data of the business platform, and whether the handling rate is consistent with the contract;
⑤ Check the collection and payment of post period clearing funds to confirm whether there are important post period income adjustments.
Based on the audit work performed, we believe that the management’s presentation and disclosure of income related to commodity sales, receipts and value-added service business are appropriate.
（2） Impairment of goodwill
1. Event description
As stated in note IV (XXV) and note VI and note 16 of the consolidated financial statements, as of December 31, 2021, the book value of goodwill is 79252848231 yuan, which is formed by Xgd Inc(300130) joint stock company’s acquisition of subsidiaries over the years and belongs to the important assets of Xgd Inc(300130) joint stock company. The management shall conduct impairment test on goodwill at the end of each year and adjust the book value of goodwill according to the results of impairment test. The results of goodwill impairment test largely depend on the estimates and assumptions made by the management, especially the major judgments of the management involved in predicting the future income and long-term income growth rate, gross profit margin, operating expenses, discount rate and so on. These estimates are uncertain. Due to the influence of the management’s judgment on the future market and the economic environment, the adoption of different estimates and assumptions will have a great impact on the recoverable value of the assessed goodwill. As the amount of goodwill is significant and the management needs to make significant judgments, we determine the impairment of goodwill as a key audit event.
2. Audit response
Our important audit procedures for goodwill impairment include:
(1) Evaluate the design and operation effectiveness of key internal controls related to the determination of the recoverable amount of goodwill by the management;
(2) Review the recognition of the asset group and the allocation method of goodwill by the management;
(3) Discuss with the management of Xgd Inc(300130) joint stock company the methods used in the goodwill impairment test, the assumptions of key evaluation, the selection of parameters, the rationality of predicting future income and cash flow discount rate, etc;
(4) Discuss with the experts of external evaluation institutions hired by the management of Xgd Inc(300130) Co., Ltd. the methods used in the goodwill impairment test, the assumptions of key evaluation, the selection of parameters, the rationality of predicting future income and cash flow discount rate, etc;
(5) In combination with the key assumptions and parameters used by the management of Xgd Inc(300130) joint stock company in determining the acquisition consideration, the predicted future income and cash flow, etc., compare them with the key assumptions and parameters used in this year and the operating performance of this year, and ask the management for the reasons for the significant differences;
(6) Evaluate the rationality of key assumptions and parameters used in the goodwill impairment test based on the contract industry standards, macro-economy and the development trend of the industry;
(7) Evaluate the independence, objectivity and qualification of the external evaluation organization hired by the management of Xgd Inc(300130) joint stock company.
(8) Test whether the calculation of net present value of future cash flow is accurate.
(9) Assess whether the management’s disclosure of goodwill and its impairment estimation results and financial statements on December 31, 2021 is appropriate.
Based on the audit work performed, we believe that the judgment made by the management in the goodwill impairment test is acceptable.
4、 Other information
The management of Xgd Inc(300130) joint stock company is responsible for other information. Other information includes the information covered in the 2021 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 understand 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 governance for financial statements
The management of Xgd Inc(300130) joint stock 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 of Xgd Inc(300130) joint stock company is responsible for evaluating the continuous operation ability of Xgd Inc(300130) joint stock company, disclosing matters related to continuous operation (if applicable), and applying the assumption of continuous operation, unless the management plans to liquidate Xgd Inc(300130) joint stock company, terminate operation or has no other realistic choice.
The management is responsible for supervising the financial reporting process of Xgd Inc(300130) joint stock 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 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 in order to design appropriate audit procedures, but the purpose is not to express opinions 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 a conclusion on the appropriateness of the going concern assumption used by the management. At the same time, according to the audit evidence obtained, it may lead to the investigation of Xgd Inc(300130) joint stock company
