3 Hubei Yihua Chemical Industry Co.Ltd(000422) 021 annual financial report
1、 Audit report
Unqualified opinion of audit opinion type standard
Signing date of audit report: April 6, 2022
Name of audit institution: Dahua Certified Public Accountants (special general partnership)
Audit Report No. [2022] 005068
Name of certified public accountant: Xie Jiawei, Wang Lin
Body of audit report
Netac Technology Co.Ltd(300042) all shareholders:
1、 Audit opinion
We have audited the financial statements of Netac Technology Co.Ltd(300042) (hereinafter referred to as Netac Technology Co.Ltd(300042) 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 Netac Technology Co.Ltd(300042) 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 Netac Technology Co.Ltd(300042) 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
We believe that the audit matters are the most important ones for the current period. 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. Impairment of accounts receivable
2. Inventories and their impairment
3. Revenue recognition
（1） Impairment of accounts receivable
1. Event description
Please refer to note V (12) and note VII (4) to the financial statements. As of December 31, 2021, the book balance of accounts receivable of Netac Technology Co.Ltd(300042) company was 12744580372 yuan, and the bad debt provision of accounts receivable was 1727515997 yuan.
The expected credit loss of accounts receivable is evaluated based on single and combination, taking into account reasonable and reliable information about past events, current situation and future economic situation prediction. Except for accounts receivable for which bad debt reserves have been withdrawn individually, the management evaluates the expected credit loss of accounts receivable based on the expected loss rate of accounts receivable portfolio with similar or similar credit risk characteristics in previous years.
Since the determination of the recoverability of accounts receivable requires the management to identify the items and objective evidence that have been impaired, evaluate the expected future available cash flow and determine its present value, which involves the management’s use of significant accounting estimates and judgments, and the recoverability of accounts receivable is important to the financial statements, we determine the impairment of accounts receivable as a key audit event.
2. Audit response
Our important audit procedures for the impairment of accounts receivable include:
(1) Understand and evaluate the key controls related to the division of accounts receivable portfolio and the calculation of expected credit loss;
(2) Evaluate whether the calculation method of expected credit loss used by the management meets the requirements of accounting standards, and review the accuracy of the calculation process of expected credit loss of accounts receivable by the management;
(3) Assess the reasonableness of the major assumptions and parameters used by the management in the forward-looking information forecast;
(4) For the accounts receivable assessed individually, the basis for the management’s assessment of credit risk and the amount of expected credit loss is reviewed, including the management’s assessment of credit risk in combination with the customer’s business situation, market environment, historical and future repayment ability and willingness;
(5) For the accounts receivable evaluated according to the portfolio, sample and recheck the accuracy of aging portfolio, credit record and other key information. Review the division of portfolios by the management and the rationality of the expected credit loss rate used for different portfolios based on historical credit loss experience and in combination with the current situation and the prediction of future economy;
(6) We sampled and checked the collection after the period to verify the rationality of the estimated credit loss assessment of accounts receivable;
(7) We evaluated the accounting treatment and disclosure of bad debt provision for accounts receivable by the management on December 31, 2021.
Based on the audit work performed, we believe that the presentation and disclosure of the impairment of accounts receivable by the management of Netac Technology Co.Ltd(300042) company is appropriate.
（2） Inventories and their impairment
1. Event description
Please refer to note V (15) and note VII (7) to the financial statements. As of December 31, 2021, the book balance of inventory of Netac Technology Co.Ltd(300042) company is 26193200576 yuan, and the inventory falling price reserve is 1454873861 yuan.
The management shall conduct inventory counting and impairment test on inventories on a quarterly basis. If the cost is higher than the net realizable value, the inventory falling price reserves shall be accrued. The net realizable value is determined according to the estimated selling price of the inventory minus the estimated cost to be incurred at the time of completion, the estimated selling expenses and relevant taxes. The management needs to make significant judgments and assumptions in the forecast, especially for the future sales price, production cost, operating expenses and relevant taxes.
Due to the significant amount of inventory and the complex impairment test process, the management’s implementation of inventory impairment test involves key judgments and estimates. Therefore, we identified the existence of inventories and the provision for inventory falling price reserves as key audit matters.
2. Audit response
Our main audit procedures for inventories and their impairment include:
(1) We understand, evaluate and test the design and operation effectiveness of internal control related to inventory management;
(2) We supervised the inventory count, checked the quantity and status of the inventory, paid attention to whether the relevant defective and sluggish materials were identified, and implemented the letter of confirmation procedure for the main issued goods;
(3) In the process of physical counting, we observe the stock age of inventory, review the accuracy of inventory age division by the management, and consider the impact of stock age on inventory impairment;
(4) Take samples to carry out purchase test and pricing test on the inventory, and check the contract, delivery order, logistics information and post period carry forward of the issued goods; (5) Pay attention to the capacity utilization of the company and conduct input-output analysis of main raw materials;
(6) We evaluated the relevant parameters used by the management in the inventory impairment test, especially the future selling price, production cost, operating expenses and relevant taxes; (7) We evaluated the management’s accounting treatment and disclosure of inventory existence and inventory falling price reserves on December 31, 2021.
Based on the audit work performed, we believe that the presentation and disclosure of inventories and their impairment by the management of Netac Technology Co.Ltd(300042) company is appropriate.
（3） Revenue recognition
1. Event description
Please refer to note V (36) and note VII (28) to the financial statements.
Netac Technology Co.Ltd(300042) company is mainly engaged in the R & D, production and sales of flash disk and mobile hard disk. The company’s operating income in 2021 was 191286172766 yuan, of which the proportion of trade income in the amount of operating income in the current period was 28.97%. As revenue is one of the key performance indicators of Netac Technology Co.Ltd(300042) company, there is an inherent risk that the management manipulates the time point of revenue recognition in order to achieve specific goals or expectations. Therefore, we determine revenue recognition as a key audit matter.
At the same time, since the trade income of Netac Technology Co.Ltd(300042) company is recognized according to the total amount method, and the trade income accounts for a large proportion of the income, the inherent risk of misstatement is high, which has a great impact on the operating results of Netac Technology Co.Ltd(300042) company, so we take the recognition of trade income as the key audit item.
2. Audit response
Our main audit procedures for revenue recognition include:
(1) Understand and evaluate the management’s design of internal control related to operating revenue recognition,
And test the effectiveness of key control implementation;
(2) Select samples to check sales contracts, identify contract terms and conditions related to the transfer of commodity control, and evaluate whether the revenue recognition time point of Netac Technology Co.Ltd(300042) company meets the requirements of accounting standards for business enterprises;
(3) Analyze and verify major customers, and implement analysis procedures for income and cost, including: current income, cost and gross profit margin fluctuation analysis, annual and monthly gross profit margin change analysis of major products, etc;
(4) Select a sample of revenue transactions recorded in the current year for confirmation; Select samples from trade customers and implement the procedures of interview and letter confirmation from end customers to understand the authenticity of business;
(5) Select a sample of revenue transactions recorded in this year and check the contract, sales order, delivery document, export declaration record, freight bill of lading, sales invoice, transportation document, bookkeeping voucher, payment collection document and other data between Netac Technology Co.Ltd(300042) company and customers;
(6) Test the delivery documents before the balance sheet date by sampling samples, and check the accounts receivable and income Sub Ledger; At the same time, select the vouchers before and after the balance sheet date from the accounts receivable and income Sub Ledger, check with the shipping documents to determine whether there is a cross period phenomenon in the sales, obtain all sales return records after the balance sheet date, check whether there is the recognition of income in advance, and check whether there are sales that have not been recognized by the other party in combination with the letter confirmation procedure of accounts receivable on the balance sheet date; (7) For the total amount method of trade business accounting, we have additionally implemented the following audit procedures:
① Understand the business background and reasons of Netac Technology Co.Ltd(300042) company’s trade business, evaluate the design of internal control related to trade business revenue recognition, and test the effectiveness of key control implementation;
② Interview suppliers and customers to understand whether the actual implementation of trade business is consistent with the contract terms;
③ Obtain the purchase and sales contracts related to the trade business, analyze the contract terms, combine the actual implementation of the business, and consult the experts of the internal technology department to evaluate the rationality of the total amount method adopted by the management of Netac Technology Co.Ltd(300042) company to judge its identity as the main responsible person when engaging in the trade business;
(8) Assess whether the management’s presentation and disclosure of income in the financial statements are appropriate.
Based on the audit work performed, we believe that the accounting treatment adopted by the management in the operating income is acceptable.
4、 Other information
Netac Technology Co.Ltd(300042) company management is responsible for other information. Other information includes the information covered in the 2021 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
Netac Technology Co.Ltd(300042) the management of the 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 Netac Technology Co.Ltd(300042) company is responsible for evaluating the sustainable operation ability of Netac Technology Co.Ltd(300042) company, disclosing matters related to sustainable operation (if applicable), and applying the assumption of sustainable operation, unless the management plans to liquidate Netac Technology Co.Ltd(300042) company, terminate operation or have no other realistic choice.
The management is responsible for supervising the financial reporting process of Netac Technology Co.Ltd(300042) 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 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 a conclusion on the appropriateness of the going concern assumption used by the management. 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 the sustainable operation ability of Netac Technology Co.Ltd(300042) company. If we conclude that there are significant uncertainties, the auditing standards require us to draw the attention of report users to the relevant disclosures in the financial statements in the audit report; If the disclosure is insufficient, we should express a non unqualified opinion. Our conclusion is based on truncation
